How China Feed Strategies Changed With Soybean Meal Prices
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Soybean Meal is one of the major components used by the Chinese feed industry. In 2020, China rebuilt its pork livestock after the swine flu outbreak put the brakes on the Chinese pig market. By the 4Q of 2020, the pork industry had recovered (Feednavigator.com). At the same time, the post-covid-19 economic rebound bolstered China’s demand for meat and agricultural products. Thus, China increased imports for Grains, Oilseeds, and Vegoils in 2021, leading to a generalized bull agricultural market. The rising Soybean Meal prices in Q3 2020 then impacted Chinese feeding strategies by rebalancing feeding mixtures with other feed commodities, and hence changing import strategies.
China Lifted Soybean Meal & Feed Prices
With China being the world’s largest importer of Soybeans, rising imports in 2021—from Brazil in particular—led to a bull market. Additionally, weather events like La Niña in South America, or the rally behind Corn in the US, affected the price dynamics and relationships between each product.
Figure 1: Soybean & Soymeal FOB Prices Between Jan 2020 and Aug 2021
Figure 1 displays FOB Soybean and Soybean Meal Spot Cash prices from Argentina, Brazil, and the US to China. Throughout the second half of 2020 until January 2021, prices for the different products were relatively close, even when they surged in Q4 2020. After that, however, an apparent gap increased between Soybean and Soybean Meal prices for all origins, partially thinning down the Soybean crush margin in China.
As China mainly crushes Soybean instead of importing the Oil and Meal complex, the local crush margin decreased and became negative. This, in turn, thinned the pork margins by increasing local Soybean Meal prices. China, therefore, reduced the parts of Soybean Meal for feeding, turning more towards other feed commodities.
Figure 2: Feed Corn & Barley FOB Prices Between Jan 2020 & Aug 2021
The two plots for Feed Barley and Corn Spot Cash prices in Figure 2 show a similar trend as Soybean since they are components of the feed mixtures. Nonetheless, the price increase was not as significant as Soybean’s, relative to May 2020—the lowest point in the timeline. With Corn being the major component for feed mixtures, the price increase, along with lower domestic production in 2020-21, decreased the incentive to import Corn. Instead, China is counting on record domestic Wheat production to replace Corn, incidentally cutting Wheat imports.
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How Chinese Import Strategy Evolved with Prices
As the Soybean price increase drove China to import more of cheaper commodities to maintain pork and poultry margins, import strategies followed feeding strategies due to the lower need for these products.
Figure 3: China Soybean & Soybean Meal Imports Between Jan 2020 & Aug 2021
The Chinese total monthly Soybean and Soybean Meal imports—in Figure 3—are displayed on a logarithmic scale to improve the visibility of Soybean Meal shipments’ evolution. While Soybean imports remain strong throughout the period, there is a (weak) relationship between Soybean Meal import increase and the incremental reduction of Soybean shipments. China decreased its Soybean imports due to the negative crush margins and instead ramped up shipments of cheaper Argentina and Brazil Soybean Meal to downplay the pork herds’ thinning margins.
Read also: China Wields $40B Soybean Import Demand as Trade Chip
Figure 4: China Barley & Corn Imports Between Jan 2020 & Aug 2021
For Barley and Corn Imports in Figure 4, there are essential drivers of shipment volumes. The primary Barley provider for China was Australia. Still, due to high tensions following Australia pushing for investigations on China and the Covid-19 outbreak, China retaliated with high import taxes on the products from Australia. As a result, China changed its pipeline and diversified with Argentinian Barley. Barley imports thus suffered from this change and only fully recovered in Q1 2021. Nonetheless, as seen in Figure 2, Argentina Barley prices rose rapidly after this change, making it a more expensive feed component.
On the other hand, Corn shipments benefited from large shipments due to the increasing demand and best reflects hog herds’ recovery. The low interest for Corn in early 2020 increased until March 2021, where shipments skyrocketed as a result of high domestic Corn prices and the need to meet the feed industry demand. Between April and June 2021, China bought 37% of the new Corn crop (2021-22). In August, however, China imported 858 kt Corn – 45% less year-on-year. This is because China has increased the share of Wheat in feed mixtures, thanks to its record production, and a generally slow shipment period globally.
Read also: How the Extreme Weather Conditions Are Shaping the US Wheat Market in 2021-22
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In a Nutshell
Soybean and Soybean Meal prices rose rapidly from late 2020 to early 2021 due to the rising demand to feed the recovering hog herds and the Chinese consumption booming in the post-Covid-19 pandemic economy. The surging prices led to tightening and ultimately negative domestic Soybean crush margins. Therefore, China had to decrease the share of Soybean Meal in feed mixtures to be replaced by other commodities and, as such, Soybean and Soybean Meal prices leveraged the whole grain market.
In line with feed strategies, China gradually increased Soybean Meal imports out of Argentina and Brazil to compensate for the negative crush margins and to try and maintain the pork margins. Moreover, while Corn imports—representing up to 60% of feed mixtures—were low in 2020 thanks to domestic production, the swelling local Corn prices also required China to import massive quantities out of the US, buying 37% of the new US crop between April and June 2021. At the same time, Barley imports to China struggled due to political tensions with Australia, thus diversifying and rebuilding its pipeline. However, this led Argentina Barley prices—which were cheaper than the Australian crop— to surge by September 2020, and swiftly overcame Australian prices, which in the end decreased the interest for the Argentinian crop.
Finally, Soybean Meal prices led China to play around with its feeding strategies for hogs. In doing so, it lifted prices for all markets exporting to China as the country vastly imported commodities for consumption and feed purposes. With the expected record Chinese Wheat crop taking an important part of feeds, China will rely less on imports in the coming months. Nonetheless, it still relies on Soybean and Soybean Meal, and recent buying of the US crop demonstrates that. Corn imports will also pick up since they remain an important crop and the domestic production decreased year on year. As such, with Brazil’s disappointing 2nd Corn crop, Argentina becomes the main competitor of US Corn for China’s market shares.