Global Markets: Oilseeds – China’s Soybean Imports Curbed On Higher Tariff for U.S. Beans

China’s soybean imports have grown steadily for the last couple of decades driven by growing population, urbanization, and rising incomes. Improved living standards have spurred China’s meat consumption, creating strong demand for high-protein feeds and edible oils.

However, due to China’s decision to include soybeans on the list of key U.S. commodities that are subject to retaliatory tariffs of 25 percent, China’s expected demand for imported soybeans is forecast to decline. Accordingly, China’s 2018/19 soybean import forecast is cut 8.0 million tons to 95.0 million this month, 2.0 million tons below the 2017/18 estimate.

Lower 2018/19 soybean imports will be partially offset by a larger carryin from 2017/18. The current trade tension between China and the United States has rattled oilseeds markets as importers and processors attempt to secure supplies for the next marketing year.

With the 2017/18 soybean import forecast unchanged, lower crush results in ending stocks being revised nearly 3.0 million tons higher to 23.4 million. Crush will continue growing, though at a slower pace than initially forecast. This will result in a reduction in China’s total oilseed meal consumption in 2018/19.

With global rapeseed and sunflowerseed production forecasts down in 2018/19, China will not be able to fully offset soybean meal with other oilseed meals. It is likely that feed rations will be altered, reducing protein meals in favor of additional coarse grains, silage, and corn byproducts.

USDA forecasts China to consume over 93.0 million tons of oilseed meals (soybean meal equivalent basis), which represents a slowing in annual consumption growth from 6.1 percent to 3.8 percent.

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2017/18 China Soybean Supply and Demand Update

Rebounding pork supplies and low meat prices on the Chinese market, coupled with higher global soybean prices and eroding Chinese crush margins, significantly slowed soybean processing between October 2017 and June 2018. As a result, USDA has cut China’s soybean crush forecast by 3.0 million tons, to 92.0 million.

With the soybean import forecast unchanged at 97.0 million tons, ending stocks are projected to grow to a new record. In 2017/18, China is projected to consume almost 90.0 million tons of oilseed meals (on a soybean meal equivalent basis), 4.6 percent more compared to last year. This is below last month’s forecast of 6.9 percent annual growth.

However, China is not only the world’s largest livestock and protein feed producer but also a major player in the vegetable oil market. Supported by strong economic growth over the last decade, the demand for edible oils has also been robust. Continuing urbanization and rising incomes have significantly altered the vegetable oil market as consumers’ preference has been shifting towards premium oils.

Soybean oil accounts for nearly half of the total edible vegetable oil consumption, while palm oil is estimated to drop to only 8 percent in 2017/18. However, with lower soybean crush, soybean oil output is forecast to fall and will need to be offset with larger vegetable oil imports, including palm oil.

U.S. Soybean Sales and Exports Trend Higher in Markets Outside of China

U.S. soybean exports reached record territory in May and are expected to reach a record in June based on export inspections. This strong pace of trade reflects the strong pace of net sales to markets outside of China. Since late March, cumulative sales to these markets have approached 7 million tons, roughly 50 percent ahead of last year’s pace.

In contrast, cumulative net sales to China over the same period have turned negative in recent weeks as recent cancellations have exceeded sales since the end of March.

The strong demand for soybeans in markets outside China is being driven by the hefty discounts for U.S. soybeans relative to Brazil, a direct response to the recent 25-percent duty levied on U.S. soybeans entering China beginning July 6. This has resulted in U.S. soybeans being considerably more competitive to Brazilian and Argentine product and at prices considerably below levels seen in April, a relative bargain for importers.

This trend is expected to continue into the foreseeable future as both strong demand by China and the duties imposed on U.S. imports help maintain price premiums for South American soybeans well into 2019.

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