China’s weak soybean demand dims prospects for US cargoes

China's soybean demand is expected to decrease in the coming months due to weak animal feed demand and negative crush margins, leaving limited room for US cargoes. The US soybeans continue to face an additional 10% tariff following the trade war between Beijing and Washington. China is set to reduce tariffs on a broad range of US farm products, but soybeans remain excluded from the tariff reduction list.

Private oilseed processors in China, who constitute the world's biggest soybean importer, have met most of their needs with supplies from Brazil, Argentina, and state reserves until early February. A senior executive at a Chinese oilseed processing company mentioned that shipments from Brazil and Argentina were booked for October and much of November, with no interest in additional purchases as they would result in losses.

Chinese state-run companies have purchased around 13.7 million tonnes of US soybeans following a trade deal in May, but private crushers have taken only South American shipments. Brazilian soybeans are currently priced similarly to US cargoes without tariffs, around US$590 per tonne. US soybean futures have dropped 1.5% this week, and further losses are expected as the US harvest reaches its peak and China slows its purchases.

Weak demand and weak margins are causing crushing margins for US soybeans scheduled for November shipment from the Pacific Northwest and Gulf to be negative. Chinese inventories at 111 crushing plants reached a 15-year high of 7.96 million tonnes in the week of September 25. Import demand has weakened as crushing plants hold high inventories and anticipate softer fourth-quarter feed demand due to shrinking sow herds and government efforts to curb overcapacity in the hog industry.

Only 37.3% of the 514,000 tonnes offered in Sinograin's latest auction of imported soybeans were sold, indicating a weak buying appetite in the market.