by PressLow margins of soybean processing are observed in the market
Low margin of soybean processing: causes of the situation
In the soybean processing segment, margins are low due to an imbalance between demand and stocks. Demand for the crop has fallen, while a large amount of product remains in reserve. Moreover, negative margins have been observed for some time, and this has led to lower demand from the PRC.
The main consumers of soybeans are Chinese processors, but for the last several weeks, their activity on the market has dropped — feeds on the basis of meal from this crop ceased to be very popular. According to S&P, gross soybean processing margins for China for the current marketing year are projected at $8.06 per tonne, up from $20.75 per tonne last month.
According to PRC companies, they don’t see the value in buying soybeans if the gross processing margin is less than $20 per ton. Therefore, a number of producers have chosen to wait and see how the market will develop in the future. Experts say that the decline in demand from China is temporary, due to seasonal characteristics.
Soybeans are the main feed for pigs and other animals in the country. Traditionally, the number of pigs decreases after the New Year holidays. During this period, the demand for pork increases sharply among the rural population, and large numbers of animals are slaughtered for this purpose. The public holiday weekend in China lasts for 7 days, but the recovery of demand takes place a few weeks after the celebration. In addition, there has been low activity for a long time in the current season due to the fact that processors have quite large stocks of meals, which were replenished before the New Year holidays. This fact has led to a low demand for the crop, and the situation will persist for a few more weeks.
However, analysts’ forecasts for the long term are quite optimistic. They say that despite the temporary stagnation, demand for soybeans from China has reached record levels, and will grow in the future. In the current marketing year, imports of the crop are expected at the level of 100 million tons, and in the next period the figure will be 110 million tons. As for the recovery of the pig herd, which was affected by the situation with African plague, it will be in full swing by the end of 2021.
However, the problem of low margins is still relevant, and a number of market processes need to be reconsidered in order to solve it. It is unlikely that another major buyer of soybeans other than China will emerge in the near future.