Bunge bullish on Chinese soy crush margin next year

04.11.2016
China is becoming one of the "bright spots" in the world soybean markets, with some of "the best margins in the world", reversing a six-month trend, Bunge said.
 
"China is one of the surprise props in soy crush this year," said Soren Schroder, chief executive, Bunge. "The rest of the world has suffered a bit in terms of overall margins," he said.
 
But "underlying demand in China is strong", Mr Schroder said.
 
As a result, Mr Schroder said the company would be entering 2017 "in a much better position than we did this year".
 
Wider crush margins
 
Mr Schroder said crush margins in China, the world's largest importer of soybeans, bounced up from margins that barely covered variable cost to now covering "full cost plus a little bit".
 
Crush margins, the difference in price between soybeans and the soymeal and soy oil they yield, determine profitability for processors.
 
He said this had come as a consequence of more disciplined imports of soybeans that reduced meal stocks in China and allowed for meal premiums to grow to the point where the company was earning a reasonable margin of around $25.
 
China has a high demand for soymeal from its massive domestic pork industry, and import tariffs make it more economic to import soybeans to crush domestically.
 
Industry Consolidation
 
Bunge said the Chinese government saw a need for consolidation, which was probably going to take place.
 
"There is excess capacity and a lot of inefficient capacity that has run over the last few years for reasons that were not necessarily related to the economics of crush," Mr Schroder said.
 
"You would think that over the next year or two that will play through," Mr Schroder said.
 
Closing unprofitable crushing facilities would support margins for other processors.
 
"So China will become a region in the world with some of the best margins in the world, having come from the opposite just six months ago."
 
 

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