Soybean demand slump lowers prices

Soybean prices have been plummeting on China’s Dalian Commodity Exchange and that is a bad omen, says a leading grains and oilseeds analyst.

“Something has happened to demand in China,” DTN’s lead analyst Todd Hultman told attendees of a recent webinar hosted by the company.

Back in September he told a group of farmers in Nebraska that he was bullish on soybeans because prices were on the rise in China.

But they peaked around the time of his presentation and are now below the 100-day average and at the lowest level in four months. Soybean meal prices in China have also tumbled to a one-year low.

It could be due to the general slowdown in the Chinese economy, electrical outages hampering soybean crush or another wave of African swine fever causing a reduction in feed demand from the hog sector.

Whatever the reason, the slumping demand is happening at an inopportune time. Fall is the time of year when U.S. exporters are typically “making hay,” said Hultman.

“We’re just getting kind of crunched out of our opportunity this time,” he said.

New crop shipments and sales commitments for U.S. soybeans are just under 1.2 billion bushels, which is 33 percent below year-ago levels.

That does not bode well, considering farmers just harvested the second largest crop on record, estimated at 120.4 million tonnes.

“There is quite a bearish concern as far as the future of soybean demand in the year ahead,” he said.

“We’re going to have to see a lot more activity perk up from somewhere.”

Arlan Suderman, chief commodities economist with StoneX, shares those concerns.

He said China’s economy is slowing due to strict COVID restrictions. Shanghai Disneyland recently shut down operations and health workers tested all 34,000 visitors to the park after one positive COVID case was reported.

People are scared to go out, causing a sharp reduction in activities like travel and dining out. That in turn is leading to a reduction in pork consumption and consequently feed demand.

“We’re looking at a significant risk of soybean imports coming down,” said Suderman.

The U.S. Department of Agriculture dropped its U.S. soybean export forecast to 2.05 billion bu. in its latest 2021-22 supply and demand estimates, down from 2.09 billion bu. in its October report.

“There’s going to be more reductions in the future because of the soft Chinese demand,” said Suderman.

Hultman thinks exports will end up closer to 1.8 billion bu., a 20 percent drop from last year.

That would push ending stocks above 360 million bu., up from the USDA’s forecast of 340 million bu. and that wouldn’t be good for prices.

DTN’s cash soybean index price was US$11.46 per bu. as of Nov. 9, which is 36 cents lower than one month ago. He said prices have been dropping “precipitously” and that trend is likely to continue.

“It’s possible that we could be looking at $10 soybeans at the low end,” said Hultman.

Prices are falling in other countries as well. U.S. soybeans had been cheaper than Brazilian beans in August, September and October but they are now at parity for January shipment.

Brazil has the edge in transportation costs to China versus U.S. soybeans out of the Gulf of Mexico, so that favours export business from Brazil.

“That is one of the more discouraging things for soybean prices at the moment.”

Suderman said there is a possibility that China will make a sizeable soybean purchase as a goodwill gesture prior to the virtual summit between U.S. president Joe Biden and Chinese leader Xi Jinping scheduled for this week.

“Frankly, it needs to happen if we’re going to have any opportunity to hit USDA’s current (export) target,” he said.