China soymeal sales sluggish ahead of twin festivals
Soymeal sales volumes in China have plunged in September compared with the previous month, which market sources have attributed to stock building of the product by feed producers in previous weeks for fear of tight supplies.
Two of China’s annual festivals – the Mid-Autumn Festival and the National Day – will fall in late September and early October, usually a time when downstream entities step up their stockpiling of soy products.
This September meanwhile saw what market participants describe as a far from normal long period of low soymeal sales in China.
Domestically traded soymeal volumes reached 5.7 million mt in August, compared with merely 735,400 mt this month to September 28, according to Overseas China Investment.
On Thursday, soymeal trade volumes came in at only 8,000 mt, an extremely low figure for daily sales.
Pricewise, the average trading price of soymeal has fallen by 7.7% since late August to CNY4,634/mt ($634.4/mt) on Thursday, according to sources.
On the Dalian Commodity Exchange, soymeal contracts on Thursday also all closed marginally lower from the previous day, with the November contract ending at CNY4,373/mt ($599/mt).
The effect of weak soymeal pricing and sales has even seemingly reached some feed producers.
Several feed producers in China recently announced price reductions for their products, which they say is in response to an “adjustment in soymeal,” according to Chinese media reports.
The sluggish sales came despite China’s Ministry of Agriculture and Rural Affairs’s statement this week that China's farmers are expected to produce another good harvest this year, and that the consumption of agricultural products has been “constantly improving.”
Later this year, traditional soy products will enter a peak consumption season, and the new season domestic soybean market is expected to be active with stable prices, the ministry in a statement Wednesday.
Buy when prices rise
For the worse-than-expected soymeal sales, many market participants Agricensus has talked to point at the previous stockpiling of soymeal by downstream entities.
In August, entities including feed producers rushed to build up a larger than normal quantity of soymeal for fear of insufficient supply due to factors like the drought in the US which might affect the harvest of soybeans.
The stockpiling, in turn, pushed soymeal price up to over CNY5,000/mt in late August, according to sources.
The mentality in China for soy products is to “buy when prices are rising but not when dropping,” said a China-based trader.
As a result, many downstream entities now have enough soymeal reserves and may not be eager to buy more, but rather are taking a wait-and-see attitude to see where prices will move.
Meanwhile, as hogs meant for consumption over the upcoming twin holidays, which will see China effectively shut down next week, have already been sent to slaughterhouses, feed consumption currently is relatively low and may only pick up towards the year-end, according to sources.
But soymeal sales may pick up going forward, market observers said.
“The process of drawing down on soymeal and feed inventories will continue during the coming long holidays. Livestock have to be fed, as middlemen have been executing contractual commitments with a good pace of pick up in recent weeks,” said an analyst.
“As the soymeal outstanding commitment volume has fallen, there is a possibility that downstream entities will have to commence soymeal pronouncement once the long holidays are over,” he said.