Demand Side of Soybean Market Remains Soft

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Soybean prices continue to find good support from lower-than-expected U.S. plantings and hot Midwest weather – which threatens yields – however, the further upside for prices is uncertain amid questions about demand.

The near-term demand outlook in the soybean market remains weak, while the longer-term outlook is clouded by weak economic data. Old-crop soybean demand continues to fall short of expectations in both the domestic and export markets.

The June U.S. soybean crush came in lower than expected. The U.S. Census Bureau pegged the June crush at 124.3 million bushels compared with trade estimates that averaged 125.1 million bushels.

The 2010-2011 crush remains behind pace to meet USDA’s projection of 1.650 billion bushels, so the old-crop carryout may come in 5-10 million bushels higher than USDA’s current projection of 200 million bushels.

China, which is by far the world’s leading importer of soybeans and the leading destination for U.S. soybeans, continues to slow its imports. On Tuesday morning, USDA announced 550,000 metric tons of previous U.S. soybean sales to China for 2010-2011 delivery had been shifted to 2011-2012 delivery.

China’s Ministry of Commerce (MOC) last week cut its estimate of China’s July soybean imports to 4.97 million metric tons (mmt) from a previous figure of 5.37 mmt. The new estimate is a drop of 3.4% from July 2010 imports of 4.95 mmt.

The MOC also sees August imports falling to 3.15 mmt, which would be down 33% from August 2010 imports of 4.7 mmt.

All of this news suggests USDA might lower its estimate of China’s old-crop soybean imports yet again in next week’s supply/demand update.

There continue to be signs Chinese demand should recover in 2011-2012. China’s Dalian soybean futures rallied on Tuesday on reports the government had allowed some large crushers to raise prices for soybean oil, which should boost crush margins and spur fresh soybean demand.

However, the Chinese demand picture is uncertain amid signs government monetary tightening is slowing rapid economic growth.

A purchasing managers’ index compiled by HSBC fell to a 16-month low and indicated Chinese manufacturing activity contracted in July. China’s exports continue to be hurt by Europe’s debt crisis and the weak U.S. economy.

Meanwhile, China has agreed to resume imports of blackleg-infected Canadian canola, lifting a nearly two-year-old ban, the state-backed China National Grain and Oils Information Center said last Thursday.

The canola ban contributed to the strong growth of Chinese soybean imports in 2009-2010 and early 2010-11.

China's quality supervisors suspended imports of Canadian canola infected with blackleg in November of 2009. Blackleg is a common form of fungus associated with the plant.

The restrictions caused China's canola imports to fall 51% in calendar 2010 to 1.6 mmt compared with 2009, according to Chinese customs data and contributed to the growth in Chinese soybean imports.

For the first half of this year, China’s canola imports were down 61% year on year to only 322,505 tons, customs data showed.

 

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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