Soybean demand in China to decline in Q3 amid lower meal prices and processing margins

Against the background of declining demand and prices for soybean meal, and as a result, processing margins, Chinese processors may reduce demand for soybeans in the 3rd quarter of 2023.

According to S&P Global Platts, for the week of May 22-28, soybean processing margins fell by $10.67/t, or 64%, to minus $12.43/t due to lower sales of soybean meal and on forecasts of increased production in June.

In April, China cut its soybean imports by 10% compared to April 2022 to 7.26 million tonnes, introducing stricter bean quality checks, although experts expected 10 million tonnes of soybeans to be imported. Due to this, from April to May 10, prices for soybean meal increased by 14%. However, due to the delay in imports in April, the main batches of soybeans will be cleared in May and June, which will increase processing volumes and collapse meal prices.

From March to May, China bought almost 10 million tons of soybeans every month. Due to the delay in customs clearance in April, in the May-July period, soybean imports will increase by 28% to 33 million tons compared to last year, and according to some estimates, by 42% to 36.5 million tons.

Prices for soybean meal fell by 8% in a week, and by 12.5% in a month. Buyers are limited in their purchases of meal, expecting further price reductions. Sales of soybean meal for delivery in July are 35%, which is 7% below the 5-year average. On May 29, meal for delivery in July was offered at 100 yuan/t, but buyers expect the price to drop to 50 yuan/t in June.

The demand for meal deliveries in July is 7.5 million tons, in August - 6.5 million tons, and in September - 5.5 million tons. As of May 29, more than 60% of the demand for deliveries in July has been closed, less than 20% of the demand for August and only 5% of demand for September. A slight recovery in livestock production did not support meal prices, as the profitability of pig farming was minus 164 yuan/head as of May 26.

Lower meal prices will worsen the profitability of processing and reduce soybean imports.