(Bloomberg) -- China’s soymeal inventories have climbed to their highest level in seven years as weak domestic feed demand fails to absorb sustained imports.
The result is a headache for the country’s crushers, and the excess supply also augurs poorly for US soybean farmers eager to sell their upcoming harvest to the world’s biggest consumer.
“China overbought and the downstream couldn’t digest that many beans,” said Ivy Li, a commodity markets analyst at StoneX.
China has moved to take advantage of low prices over recent months, scooping up record volumes of South American soybeans. Now shipments are arriving, but a smaller pig herd and gloomy consumers continue to weigh on feed consumption.
The nation’s importers are still buying some US soybean cargoes to cover demand from September, but the pace of purchases has been very slow, traders said.
Supply pressure is likely to be most acute this month, with record soybean arrivals at a time when soymeal prices have slumped, increasing losses from processing the oilseed, according to Wang Xiaoyang, a senior analyst at Sinolink Futures.
“August should be the darkest month,” he said.
Feed producers and pig farmers have also been slow to collect soymeal from crushers, hoping prices may fall further — a gambit that is exacerbating high inventories at the processors’ plants, and forcing some crushers to cut back production or even suspend operations due to limited storage space.
The most actively traded soybean meal futures on the Dalian Commodity Exchange have fallen around 13% this quarter and touched 2,866 yuan ($401) a ton this week, the lowest level in almost four years. Crushers are currently losing more than 500 yuan for each ton of soybeans processed.
The brimming stockpiles should help keep Chinese buyers restrained, while feed demand from the livestock sector, especially from pig farmers, is likely to remain sluggish in the second half, according to StoneX’s Li.
“US soybean sales will face a lot of pressure this season,” she said.
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