China faces soybean glut as peak U.S. export season nears

By Naveen Thukral and Mei Mei Chu

SINGAPORE/BEIJING, July 19 (Reuters) - China is facing an oversupply of soybeans as record high purchases boost stockpiles at a time when animal feed demand remains subdued, with prices of products such as soyoil and soymeal set to sink even lower.

The soybean surplus also threatens to curb China's appetite for imports in the September-December period, the peak marketing season for U.S. beans, putting further pressure on prices Sv1 already near four-year lows, traders and analysts said.

“The main issue is that demand for soybean products is not picking up,” said a Singapore-based trader at an international company which runs oilseed processing plants in China. “Crush margins are under pressure due to huge arrivals of beans.”

Soybeans are crushed to make soymeal, a protein-rich ingredient used to feed the world's biggest herd of pigs in China, and soyoil, which is mainly used for cooking.

Slower economic growth in China, which consumes nearly half of the world’s pork, is denting meat demand.

China’s July soybean imports, mostly from Brazil, are likely to hit a record high on lower prices and the prospect of Donald Trump returning as U.S. president and reigniting trade frictions, traders said.

“China’s pork demand is not strong,” said Pan Chenjun, a senior analyst for livestock at Rabobank in Hong Kong. “Pork prices have risen greatly but that is less due to improved demand; it is mainly because there is a tight supply of hogs.”

Hog breeders are trimming sow herd sizes in line with a government directive to curb overcapacity, and delaying slaughter in order to sell at heavier weights.

China's second quarter pork output fell from a year earlier, official data showed, while its pig herd fell to 415.33 million head in the second quarter from 408.5 million in the previous quarter.

Benchmark Dalian soymeal DSMcv1 has lost almost 8% over three weeks, while soyoil DBYcv1 fell around 4% last week.

Crush margins, in negative territory since early June, plunged further this month. Oilseed processors in the hub of Rizhao CNSOY-RZO-MRG are losing more than 600 yuan per ton, their biggest drop since February.

Since February, around 9.68 million tons of imported soybeans have been put up for auction by state stockpiler Sinograin, but only 2.08 million tons, or 21%, were bought by crushers, according to Reuters’ calculations based on auction announcements and analyst reports.

Last year, around 27% of soybeans offered at auction were sold and participation rates were also higher, said Darin Friedrichs, co-founder of Shanghai-based Sitonia Consulting.

“It is very hard to be bullish because across pretty much all of the proteins, prices are down, demand is weak. Consumers are not really wanting to spend money,” he added.

In its latest report, China's agriculture ministry forecast 2024/25 soybean consumption falling to 114.56 million tons, compared to an estimated 115.24 million tons during the 2023/24 marketing year ending September. /CASDE

Benchmark Chicago soybeans Sv1, which are down by a fifth in 2024, could face more headwinds on expectations of weak Chinese demand and higher U.S. output. GRA/

Brazil has surpassed the U.S. as China's top soybean supplier, accounting for 70% of imports.

(Reporting by Naveen Thukral and Mei Mei Chu; editing by Miral Fahmy)