China’s soybean crush margins worsen

China’s soybean crush margins have slid since mid-December, taking direction from rising import costs from Brazil, although partially offset by the upward trend in Dalian-listed soymeal and soyoil futures.

Board crush margins for soybeans delivered to China have steadily fallen since mid-December, following rising import costs of Brazilian products, on the account of higher soybean futures on the Chicago Board of Trade (CBOT), as well as widening cfr premiums.

As the Argus-assessed front-month rolled to February between mid-December and mid-January, CBOT futures for March contract moved up from $12.65/bu to $13.77/bu during the period, while cfr premiums widened by ¢36/bu.

Stronger movements on the CBOT and cfr premiums were boosted by lower output estimates and deteriorating crop quality in South America under drought conditions. The US Department of Agriculture revised South America’s 2021-22 soybean production lower by 9.5mn t in its January report, down from 261.4mn t estimated a month earlier. This resulted in a slower selling pace from farmers in the producing countries, further pushing up Chinese soybean cfr prices.

Meanwhile, China’s soymeal futures on the Dalian Commodity Exchange (DCE) increased slightly, up from around 3,150 yuan/t ($498.3/t) to Yn3,240/t for May contract from mid-December to mid-January, in line with rising CBOT soybean futures. Dalian-listed soyoil futures also inched up, gaining by around Yn850/t for the underlying contract over the same period.

The upticks in soymeal and soyoil futures on the DCE partially offset higher import costs, but still failed to reverse the downward trend in board crush margins for soybeans delivered to China. For front-month shipments, board crush margins fell to minus Yn243/t on 14 January, down from minus Yn44/t a month earlier.

This downward trend has continued since March replaced February as the front-month for Argus assessments on 17 January, having dropped by around Yn50/t to over Yn160/t today.

Meanwhile, advanced soybean harvesting in Brazil may fuel higher freight rates, as inland transportation demand outstrips vehicle availability. This may further support soybean prices delivered to China, and weigh on crush margins.

Argus Media

Tags: China, soybean