China's clampdown on DDGs to bolster soybean imports

08.08.2016

A slowdown in Chinese imports of soybeans, which some commentators say could drop for the first time in 15 years, may be prevented by the knock-on effects of a slump in purchases of distillers' grains      

Many investors have trimmed estimates for soybean imports by China, the top buyer, after Beijing launched a programme of sales from state inventories, which initially received a strong take-up, being priced well below market values.

All of the 300,000 tonnes of soybeans offered at the first auction, on July 15, were sold, at an average price of 3,360 yuan a tonne, well below cash market prices, and the 3,820 yuan a tonne at which spot futures were trading on the Dalian exchange.

"A leading industry source estimated that 3m tonnes might be sold when the auction sales end" at the close of next month, the US Department of Agriculture's bureau in Beijing said.

'Auction price attractive'

Oil World has forecast that Chinese soybean imports could drop by as much as 4% to 80m tonnes in the 2016-17 season – the first decline in 15 years.

And the USDA bureau, in a report overnight, cautioned that US soybean exports to China "might be impacted… in the second half of 2016.

"The low auction price remains attractive."

However, the bureau stuck with a forecast of 86.0m tonnes for 2016-17 imports – a figure up 3.0m tonnes year on year, although 1.0m tonnes behind the USDA's official estimate – citing the boost to soybean demand from a clampdown on Chinese purchases of distillers' grains, or DDGs.

DDGs, a byproduct of corn ethanol manufacture, are an alternative to soymeal, derived from soybeans, as a high-protein ingredient in livestock feed.

DDGs out of favour

A Beijing investigation into claims that the US is, in trade terms, "dumping" DDGs on the international market may prove a "favourable factor" for Chinese soybean imports, the bureau said.

A year-on-year drop in China's imports of DDGs, which fell by 900,000 tonnes to 1.5m tonnes in the first half of 2016, looks set to continue.

"Many industry insiders estimate total DDGs imports could fall to 3m tonnes [in 2016] from the record 6.3m tonnes in 2015," the bureau said.

Furthermore, in 2017 too, "lower DDGs imports may continue, and may boost China's use of soymeal".

In Chicago, there has been talk that China is to impose a levy of up to 25% on imports of US DDGs, in an effort to offset what it claims is the unfair support from Washington given to trade in the product.

Forward sales

Latest Chinese customs data, for June, show a 75% slump year on year to 235,592 tonnes in China's imports of DDGs.

Meanwhile, China's soybean imports, at 7.56m tonnes, were down a modest 5.9% year on year, and for the first half of 2016 overall were up 9.8% at 38.6m tonnes.

USDA trade data support some cause for optimism over the country's own soybean exports to China in 2016-17, with forward sales for the season, starting next month, at 3.98m tonnes, a rise of 22% year on year.

At Chicago broker Futures International, Terry Reilly, flagging the slowdown in auction sales, said that "China domestic users seem to prefer imported soybeans over old crop inventories".


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