China’s faltering economy sends shivers in oilseed market

Talk about mixed marketing signals.

China is the world’s largest importer of oilseeds, and the market is always trying to determine how much soybean, canola and palm oil it will take.

And because the soybean trade is so large, it tends to set the general trend for other oilseeds.

China’s long-term spectacular economic growth is slowing a lot, and that has all commodity markets on edge, fearful that an important component of world demand is about to collapse.

After an average annual growth rate of 10 percent for three decades, China’s economy grew at only 7.4 percent last year and some believe it will fall to less than seven percent in the coming year.

On Sept. 28, China reported that profits in August at industrial companies fell 8.8 percent from a year ago.

Will a slowing Chinese economy create less demand for imported oilseeds?

The U.S. Department of Agriculture forecasts that China will import a record 79 million tonnes of soybeans from all sources this crop year, up two million tonnes from 2014-15. Of that it expects 28.5 million will come from the United States.

However, sales so far in the crop year are well behind last year’s pace. Soybeans that were sold for delivery to China this crop year as of Sept. 17 were 7.1 million, down from 16 million at the same point last year.

A sigh of relief could be heard throughout the market last week when importers from China signed agreements to buy a total of 13.18 million tonnes of U.S. soybeans valued at about $5.3 billion at a signing ceremony in Des Moines, Iowa.

Most the soybeans will be shipped in the current crop year, but some will be extended into 2016-17.

The event coincided with the visit to the U.S. of Chinese president Xi Jinping.

And just to reinforce things, on Sept. 25 the USDA reported a flash sale of 260,000 tonnes of soybeans to China for delivery in the 2015-16 marketing year.

That lifted soybeans 2.5 percent last week, but the trade will closely watch to see if the tonnes committed to in the signing ceremony actually are turned into real sales on the books.

These promises of soybean sales won’t spark a sustained rally. They will only lessen the downward pressure on soybeans and if they fall short of expectations, could turn into a negative factor.

The U.S. harvest is also a negative factor for prices while it continues, and the expectation of a record South American crop seeded this fall is another negative for prices.

That is slightly offset by expectations of reduced palm oil production because of hot dry weather in Indonesia and Malaysia because of the strengthening El Nino.

However, that same El Nino usually delivers good moisture to South American soybean fields, so how it all plays out in the end is far from clear.

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