CFR China soybeans basis back in positive; downside risks remain on stricter custom inspection

Chinese soybeans basis to Chicago Board of Trade futures climbed back to positive territory May 11, rising 90 cents/bu over the last two weeks; however, downside risks remain due to tighter customs checks on imported soybeans in China, market sources said.

Platts assessed soybean CFR China M1 basis at plus 30 cents/bu over July (N) contract on the Chicago Board of Trade May 10, having slumped to its lowest at minus 61 cents/bu on April 20, S&P Global Commodity Insights data showed. Platts-assessed soybean CFR China M1 stood at $528.01/mt May 10, up 2.5% week on week.

Chinese crushers were actively covering demand for nearby shipments during the last two weeks as the lower CFR China soybean basis led to a recovery in crush margins. Over the past two weeks, approximately 65-70 cargoes were purchased for May to July shipment, sources said.

Nonetheless, buying interest for forward shipments remained muted due to tighter customs checks and expectations of higher volumes of soybeans arriving in the coming month, a Chinese trader said.

According to multiple importers, cargo collections of imported soybeans had been delayed since April due to a longer processing time — up to 20 working days — for the release of inspection permits by the China Entry-Exit Inspection and Quarantine Bureau.

According to several industry sources, Chinese customs in the past randomly checked one out of every five cargoes of imported soybeans for inspection permits. Nowadays, however, all five of such imported cargoes would need to be checked.

The postponed soybeans cargo collection resulted in a reduction in import volumes in April. China’s soybean imports fell 10.1% year on year to 7.26 million mt in April, China’s General Administration of Customs data showed.

Subsequently, a tight supply of soybeans weighed down on crushing operating rates. According to industry sources, weekly crushing operating rates were under 60% over the last month. Lower soybean meal production drove the meal inventory to sit at 280,000 mt as of May 8, its lowest since June 2020.

According to industry sources, spot soybean meal prices rebounded to Yuan 4,700/mt in China’s northern and eastern regions May 10, up 5% week on week.

“Multiple crushers in the east and north regions of China were forced to shut down due to insufficient soybean supply,” a Chinese crusher said.

“We are not sure how long the stricter controls over the customs inspection processes will last, hence, we are hesitating to purchase for July to September shipments as more demurrage costs will be incurred if the cargo collection will be delayed in the future,” a source at one of China’s largest crushers said.

According to market sources, 88% of total open demand at 8.5 million mt has been covered for June shipment. However, demand coverage for both July and August shipments remained low at 30% out of 7.5 million mt and 5% out of 6 million mt, respectively.

As the unloading of soybeans from April shipments have been delayed to this month, May and June imported soybeans might hit closer to 10 million mt, market sources said.

“The potential surge in the soybean stocks and meal production will exert immense downward pressure on soybean meal prices once the stricter customs inspection eases,” a source at a China-based trading house said.

Given the expectation that soybean meal prices will slump in the coming months as supplies reach a peak, downstream feed millers were reluctant to purchase soybeans meal for forward month delivery. As a result, crushers’ buying interest for forward shipments of soybeans dimmed, a Chinese trader said.

As Chinese crushers’ confidence in purchasing forward shipments dipped, amid Brazilian farmers’ selling progression still lagging at 53% compared with 70% last year, Chinese market participants hold a bearish view on CFR China soybean prices.

A market source said that soybean demand continued to fall short of market expectations as China’s hog breeding margin stood at minus Yuan 170-200/head as of May 8.

Tags: China, soybeans, shipments, futures, basis, demand, Chicago Board of Trade, inspection