Concerns About Chinese Soy Demand Grow

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While last Wednesday’s USDA supply/demand report sparked renewed concerns about tight U.S. soybean stocks, ample world soybean stocks and rising worries about Chinese demand seem set to keep pressure on soybean prices.

Demand worries appeared to rise to a new level on Monday after China reported a slowdown in economic growth during the first quarter. Official government data showed China’s gross domestic product (GDP) grew by 7.7% during the quarter, compared with trade expectations for growth of 8.0% and fourth-quarter 2012 growth of 7.9%.

The spread of bird flu cases outside of eastern China also helped boost concerns about Chinese soy demand. Estimates are that bird flu concerns have already cost China’s poultry industry more than $1.6 billion with thousands of birds being culled and prices falling sharply for high quality birds due to consumer flu fears.

This news suggests potential for a further cut to USDA’s forecast for Chinese soybean imports. USDA last week lowered its forecast for China’s 2012-2013 soybean imports by 2 million metric tons to 61 mmt, citing the slow pace of Chinese import during the first half of the marketing year. USDA still sees this year’s imports rising 2.6% from 59.23 mmt in 2011-2012.

However, the China National Grain and Oils Information Center, a think tank backed by China’s government, recently forecast that soybean imports would fall for the first time in nine years. The CNGOIC lowered its 2012-2013 import forecast to 59 mmt, down from an earlier estimate of 60 mmt, citing bird flu problems and unprofitable Chinese hog prices, which have also hurt soymeal demand.

China’s March soybean imports were 3.84 mmt, down 20.1% from a year earlier, according to official customs data, while January-March imports of 11.49 mmt were down 13.4% from 2012. Delays in shipments out of Brazil are partly to blame for the lower imports over the past couple of months.

Looking forward to next year, in a forecast released on March 1, before the bird flu concerns arose, the U.S. agricultural attache in Beijing projected China’s soybean imports would rise 6% in 2013-2014. However, that growth is certainly in doubt right now, even though the current demand softness is likely just a temporary blip in the long-term trend of rising Chinese soy imports.

On the supportive side for Chinese demand, China’s National Bureau of Statistics on Monday forecast the country’s soybean plantings will fall by another 8.5% this year as land continues to be shifted to grain production. Corn plantings are seen rising 4.1%.

The drop in soybean plantings should mean a continuation of the long-term trend of declining Chinese soybean production due to emphasis on grain production, which will ensure that Chinese feed makers will become even more dependent on imports to meet their needs.

 

Editor’s note: Richard Brock, Corn & Soybean Digest's marketing editor, is president of Brock Associates, a farm market advisory firm, and publisher of The Brock Report.

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