China’s soybean consumption is slowing as a new wave of African swine fever takes hold in that country, says an analyst.
The country’s hog herd had been rebounding from the disease much faster than many analysts had anticipated, but there has been a setback in that recovery.
A new variant of the disease is spreading in China, putting the brakes on the expansion of the hog herd and the consumption of soybean meal and feedgrains.
China has issued four notifications to the U.S. Department of Agriculture since the end of January about new cases of the disease being detected in the country.
Arlan Suderman, chief commodities economist with StoneX, said small and medium-sized hog farmers in China are liquidating herds before the disease strikes their operations.
“They’re not restocking. This suggests some decreased demand for soymeal for perhaps some months,” he said in a recent webinar.
Suderman thinks the resurgence of African swine fever in China could be the top bearish event of 2021 if the government is unable to control the spread of the disease.
The good news is he thinks the government will be able to slow the spread relatively quickly now that the country’s hog sector has morphed into a more commercial industry rather than a collection of backyard operations.
StoneX estimates China’s hog herd is at 60 to 65 percent of pre-ASF levels based on anecdotal reports from Chinese hog companies and feed use numbers. That is down from 80 to 85 percent earlier this winter.
The USDA doesn’t seem to share Suderman’s pessimism about Chinese soybean demand.
Its April World Agricultural Supply and Demand Estimates report it is forecasting that the Asian giant will import 100 million tonnes of soybeans in 2020-21. That is unchanged from the March estimate and is above the previous year’s total of 98.53 million tonnes.
However, the Dim Sums blog is also nervous about the flare up in ASF cases in China. It reports that China’s sow numbers fell by three to four percent each month in January and February.
The resurgence of the disease has been blamed on increased stocking density, extremely cold winter weather and the appearance of new strains of the disease.
“African swine fever and piglet diarrhea increased death rates, and panicked farmers sent numerous juvenile pigs to the abattoir, contributing to the recent decline in hog prices,” stated Dim Sums in a recent article.
Suderman confirmed that liquidation of the hog herd is pressuring China’s hog and pork prices downward, while fall hog futures prices are trending up in anticipation of a shortage arising in a few months.
The sudden downsizing of the hog herd is having ripple effects on feedgrain markets in China.
“Soybean crush margins have been absolutely collapsing,” he said.
Crushers are processing about 1.55 million tonnes of the crop per week. Volumes should have been closer to 2.1 million tonnes if the variant outbreak hadn’t occurred.
Soybean meal supplies are growing despite the reduced crush volumes, reflecting the faltering demand for the product.
Meanwhile, the first of an armada of ships carrying new crop Brazilian soybeans are starting to arrive in China. The country will soon be unloading about 2.5 million tonnes of the crop per week. There is plenty of U.S. corn arriving as well.
Suderman thinks Brazil will have to put the brakes on shipments to China over the next 30 days.
Soybean sales to China had been phenomenal in 2020-21. Export sales of U.S. soybeans through week 31 are exceeding the pace needed to meet the USDA’s export target by 139 million bushels due to incredible demand out of China.
“We were really rebuilding that (demand) at a fast pace, but now that has slowed once again,” he said.
There is often one final surge of U.S. soybean sales in August ahead of the new crop harvest because China will have depleted Brazil’s soybean supplies by then.
“The odds of that look much lower this year because of African swine fever,” said Suderman.
But once again the USDA seems to be at odds with Suderman’s forecast for slower soybean demand out of China.
In its recent Oilseeds: World Markets and Trade report, the department noted that Brazil shipped out a record 13.5 million tonnes of the crop in March, 25 percent above the previous year.
It said there is a good chance that April’s shipments will also break last year’s record of 14.9 million tonnes based on the extensive lineup of ships in Brazilian ports waiting to be loaded with soybeans.
“With projected U.S. soybean plantings below both initial USDA projections and market expectations, prospects for a tight global soybean market in late 2021 have grown,” stated the USDA.