Low soymeal stocks not indicative of renewed soybean demand: trade

Low soybean meals stocks at major Chinese crushers and feed companies is not indicative of a recovery in soybean demand in the world's biggest importer, trade sources have told Agricensus, as high soybean stock levels will likely blunt any import demand. 

Physical soybean meal stocks, as of late February, could last for around a week at Chinese feed producers, a markedly lower level than last year, according to a note published earlier in the week by the China National Grain and Oil Information Centre.

The low stock level is partly the result of falling soymeal prices, according to the CNGOIC, with values in decline since December 2023.

While price falls slowed through early January 2024, CNGOIC noted that feed producers have adopted a wait-and-see attitude and are now buying the product only when they need it.

In another sign of the decreasing level, soybean meal stocks at major crushers in China dropped by 110,000 mt from February 16 to 590,000 mt last week, according to CNGOIC.

In general, soybean meal stocks currently are close to the level seen in 2022 while lower than last year, led by much lower stocks reported in regions including the eastern province of Shandong and central province of Henan, according to a Chinese broker.

Meanwhile, the soybean meal stock trade volume is estimated to have reached 803,400 mt last week, while so far this week 341,500 mt of the product has been traded, according to sources.

The low stock level is not only a result of the slow buying pace of feed producers, but also comes down to the yet-to-resume operations of crushers.

"Logistics and crushing facilities are unable to run in full speed until the Chinese New Year [phase] is completely over," said a second Chinese broker.

But despite buyers’ needing to replenish soybean meal soon, market participants still don’t expect that to affect soybean demand much, as soybean stocks are still high at crushers.

Soybean stocks stood at 6.11 million mt as of February 23, an increase of 210,000 mt from February 16, according to CNGOIC.

Spoiled by huge harvests, Chinese crushers stockpiled Brazilian soybeans when their premiums were dropping, according to sources.

"Chinese crushers are very cautious in buying soybeans now, while the stock level of other types of meals are high and [buyers] are turning to those," said a third Chinese broker.

In addition, hog industry profits - the most important driver of China’s soybean demand - look set to remain underwhelming in the coming days.

Hog prices dropped by nearly 7% last week from the previous week, while the demand for hog breeding has entered the off-season after the Lunar New Year holiday, wrote analysts from Dongxing Securities in a note on Monday.

Utilization rates at slaughter houses and their willingness to purchase pigs are both low, and despite transportation issues hindering movements of animals in some regions amid rainy and snowy weather, the oversupply of hogs will likely remain in place in the short term.

That means hog prices may continue to fluctuate and reach the bottom, the analysts said.

Eventually, the hope of any rebound in Chinese soybean demand will depend on how fast the hog industry can clear excessive production capacity and see profits come back.