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Original title: Soybean meal: Uncertainty in maintaining a weak domestic pattern for US soybeans Source: Wenhua Finance
Call for Papers (Author: East Asia Futures Xu Liang) – Viewpoint:
1. At present, there is no problem with the old crop of global soybeans meeting China’s demand, and there will be no supply and demand gap for the time being, but the low inventory in the United States will continue, and the inventory in South America will be slightly better. The overall inventory in the main producing countries is low.
3. The output of the new crop of US soybeans is more critical and has a clear guiding role for the later market. However, there are uncertainties in current area and yield. If there is an abnormal weather in the late stage of the new US soybean crop, there is still a chance for the market to go longer; otherwise, the probability of a shock downward movement is greater.
2. Domestic live pig prices have plummeted, farming profits have fallen sharply, demand for soybean meal has weakened, and peak seasons are not booming. There is a lack of upward drive in the country. If the US soybeans weaken, a downward drive may be formed in the country. A downward shift in the cost end will cause a further decline in the country.
1. The evolution of the global supply and demand pattern
1.The tension of the old work
The global old soybean crop maintains tight supply and low stocks. The main reason is that the production in the United States has been slow to recover from the previous year’s production reduction, the growth rate in Brazil has slowed down, and the substantial increase in Chinese demand has led to the maintenance of low inventories in the main producing countries.
Before September 2021, global supply will still rely on old crops. Especially after May, the market mainly relies on Brazilian soybeans.
The current US soybean stocks are extremely low and there are very few soybeans available. USDA data shows that the United States is expected to export 62.06 million tons in 20/21. As of the second week of June, the United States has exported 57.89 million tons, and the United States has only about 4 million tons of soybeans left from its export target. According to the USDA balance sheet, when the U.S. exports reached 62.06 million tons, the U.S. closing inventory is expected to be only 3.66 million tons. In other words, the current carryover of old crops in the United States is very low.
Looking at the old works in Brazil, there is still a relatively sufficient supply, and there is still no gap in supply and demand for the time being. USDA estimates that Brazil will export 86 million tons in 20/21, and if 80% of it goes to China, it can provide about 68.8 million tons to China. Let’s look back at China’s imports. As of June 10, China has imported 35 million tons of U.S. soybeans, and about 3.7 million tons have not been shipped. According to USDA’s annual import estimate of 100 million tons from China, China theoretically needs to import about 61 million tons from Brazil to meet China’s demand. Obviously, Brazil’s export volume is sufficient to meet the later domestic demand. Not to mention that China also imports some soybeans from countries such as Argentina and Uruguay.
Therefore, judging from the supply and demand of old crops, there will be no gap between supply and demand, and the current output of South American soybeans is sufficient for China’s later demand. Therefore, the tight global stocks of old soybeans are reflected in the low stocks and supply of soybeans in the United States, and the tight US soybeans. After South American production has landed, South America is sufficient to meet China’s demand, and South American inventories are relatively not too tight.
U.S. soybean export progress
Data source: USDA, East Asian Research Institute
U.S. supply and demand and inventory
Data source: USDA, East Asian Research Institute
2. The supply and demand variables of the new US soybeans
The US soybeans are currently in the sowing and growing season, and sowing is basically over. The area report on June 30 will determine the final area of US soybeans. The planting of Brazilian soybeans needs to wait until after September, so the short-term market is mainly concerned with the growth of new crops of US soybeans.
In March, the USDA announced the planting intention of the United States showing that the planting area of soybeans in the United States was 87.6 million acres, which was lower than the market’s estimate at that time, and was still a certain distance from the historically highest area of 90 million acres;
If we look at the total area of soybeans and corn in the United States, the total area of newly planted soybeans and corn this year has reached a record high, and the sown area of soybeans is slightly higher than that of corn. The final area still needs to wait until the area report on June 30 to see the difference.
Secondly, the yield of U.S. soybeans is relatively low in terms of the current yield. Years with good yields before, such as 2016/17, reached 72%, while the previous low yield was 2019/20. The corresponding excellent and good rate is about 55%; the current excellent and good rate of US soybeans is about 60%. If the weather is abnormal in the later period, the yield may be significantly lower than expected.
U.S. soybean and corn area
Data source: USDA, East Asian Research Institute
U.S. soybean area and yield
Therefore, there is a very large uncertainty in the output of US soybeans this year, and the new production of US soybeans has a very large impact on the later price and plays a very critical role. The supply of new crops for US soybeans is expected to be reflected in the area report at the end of the month and the growth in the next two months.
Judging from the USDA supply and demand report in June, the output of U.S. soybeans and new beans is expected to reach 120 million tons, an increase of 6.5% year-on-year, close to the highest level in history. However, the output in June was extrapolated based on the area report and trend yield in March, and there was a big variable between the final output. Therefore, after the current US soybean planting is completed, the area must be determined first, and then the change in yield must be determined in the following two months.
Summary of global supply and demand: Old crop supply in the United States is tight, stocks are low, and carryover stocks are extremely low; South American soybeans have become the main supplier, and there is no gap in supply and demand for the time being. The supply and demand pattern of old crops supports the current relatively high prices, but it is difficult Further drive prices. Later price drives pay more attention to the area of soybeans in the United States and the growth of the next two to three months. At present, there is a big uncertainty. If the impact of abnormal weather is not taken into account, the US soybeans will continue to increase production in the future, supply and demand will weaken, and global supply will recover.
2. China’s soybean meal supply and demand situation
Demand for soybean meal has slowed sharply
The domestic demand for soybean meal this year was significantly lower than expected, mainly due to the sharp drop in the price of live pigs. The pig price has been falling continuously for half a year, and the farming profits are almost at a loss for the entire industry. Due to the large losses in farming, the demand for protein has fallen. Although we see that the demand for feed itself is still good, according to the feed industry association data, as of May, feed production has increased by 21.5% year-on-year, pig feed has increased by 75.4% year-on-year, and poultry feed has fallen by 5.6% year-on-year.
The main reason for the sharp drop in the price of pigs this time is that while the stock is gradually recovering, the pressure of large pigs has led to a substantial increase in the weight of the later slaughter, a substantial increase in pork supply, and a serious oversupply. Although the slaughter of large pigs will lead to a year-on-year increase in feed demand, the rapid decline in farming profits will lead to a decline in the demand for unit protein, which in turn will lead to a relatively weakening of demand for soybean meal.
Pig related data
Data source: Grain and Oil Business Network, IFIND, East Asia Research Institute
Domestic supply still maintains a loose pattern
According to customs data, a total of 38.23 million tons of soybeans were imported from January to May, an increase of 5.5% year-on-year, but domestic soybean meal stocks rose from 600,000 tons at the beginning of the year to the current 1.13 million tons; soybean stocks at the port also increased from 4.8 million at the beginning of the year. Tons rose to the current 6.7 million tons. The simultaneous increase in port soybean and soybean meal stocks shows that domestic oil mills’ crush growth rate is weaker than that of imported soybeans, and soybean meal demand growth rate is weaker than that of oil mills’ crush growth rate. Simply put, it is negative feedback caused by poor soybean meal demand.
Soybean stocks in domestic ports and soybean meal stocks in oil plants
Data source: Grain and Oil Business Network, East Asia Research Institute
In the future, the supply will remain loose, and the domestic stock will continue to accumulate with a higher probability
According to the current arrival estimates, 10.9 million tons will arrive in June, 10.2 million tons will arrive in July, and 8 million tons will arrive in August. Approximately 29.1 million tons arrived in Hong Kong in three months. In the same period last year, the three-month crush was 26.58 million tons. If a 3%-5% crushing growth rate is given on the basis of last year, the crushing demand will be about 28 million tons. Taking into account the current situation of live pigs, there is a greater probability that the demand will be lower than expected in the later period. Therefore, imports in the next three months will be sufficient for domestic demand, and the inventory may continue to accumulate.
Summary of domestic supply and demand: The sharp drop in the price of live pigs has led to a sharp slowdown in demand for soybean meal, and imports have maintained a steady growth rate, and the country is facing high inventory pressure; future imported soybeans will continue to maintain a high growth rate. In the later period, domestic demand cannot absorb the import growth rate, which will continue to cause domestic demand. Tired library. Domestic soybean meal is under pressure from weak supply and high inventories.
3. Future market outlook
1. The price range of U.S. soybeans determines the price range of domestic soybean meal. Relatively weak domestic prices will translate into a weaker basis and squeeze profit margins. The United States has low stocks of old crops, and there are uncertainties in the production of new crops.
2. In the later period, the market drove attention to the US soybean area report at the end of June, as well as the weather and good rate changes in July and August. Once the area or weather triggers lower yield expectations, US soybeans still have a chance to re-go long. Otherwise, the probability of US soybeans maintaining a high-level shock pattern is greater.
3. Brazil’s old crops can be maintained until the end of this season, and the slowdown in China’s demand has led to a pattern of high supply and high inventory in the country in the later period. Domestic supply and demand are relatively weak.
Generally speaking, the trend direction still pays attention to the changes of US soybeans, especially the area report at the end of the month and the future conditions. If there is no weather driving, the probability of high price fluctuations and weakening will be greater. However, the current rate of good and good quality is low, and if there is an unexpected weather, you can continue to do more. Domestic soybean meal is facing a pattern of weak supply and demand, demand is weaker than expected, supply is loose, and the contradiction between domestic supply and demand is not prominent. Based on the volatility of US soybean prices, the performance is weak, and the basis may continue to weaken in the future.
About the author: Xu Liang, Manager of Agricultural Products Department of East Asia Futures R&D Department, worked in 2006. Mainly engaged in the research of soybean, soybean meal and oil series products. He has published relevant professional articles on the Futures Daily, Hexun and other media. Focus on fundamental research, supplemented by technical research to determine the medium and long-term trends of varieties.
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