Lower pork prices in China will soon increase pressure on soybean meal prices

The world market of soybeans and soybean meal reacts sensitively to changes in demand from China, the main importer of these products. Therefore, the dynamics of pork production and prices are an important indicator of feed and soybean prices.

Domestic hog prices in China fell 17.5% for the month and 43% for the last quarter, soybean meal fell 15% for the quarter, and soybean processing margins approached zero.

On the Chicago Stock Exchange, soybean meal last week hit an 8-year high of $546/t amid speculative demand over a possible cut in the soybean harvest and meal supply in Argentina. However, a record soybean harvest in Brazil and a drop in demand from China could lower meal prices.

China’s hog prices fell for an 11th straight week amid over-slaughter and a rise in pork stocks due to lower-than-expected demand during the New Year holiday, dampening demand for soybean meal. The pig population, which began to decline in October 2021, recovered to the break-even level in May of last year. The rapid recovery of the number of sows was facilitated by a shortage of supplies and inflation. At the end of November, the number of sows amounted to 44 million tons, which exceeded the norm by 7%. As a result, the volume of slaughter increased, and in December they reached 30 million heads, which is 9% higher than in December 2021, and 35% higher than the 5-year average. Slaughter weight of pigs decreased from 150 kg to 90 kg in January, which will lead to a drop in demand for feed and meal in the near future.

The increase in pork offers against the background of the spread of covid in December-January collapsed the demand and prices for pigs, and the profitability of their cultivation was minus 200 yuan/t. Following them, the spot price of soybean meal fell by 1.3% for the month, and by 14.7% for the quarter. The pressure on quotations increases the increase in soybean processing volumes, so they will continue to fall in February.

China’s soybean processing profitability has been positive since mid-January, but could turn negative again if soybean meal prices continue to fall. According to S&P Global Commodity Insights, as of February 1, Platts estimated a gross refining margin of $1.78/t with shipment in March.

Processors report that soybean imports in March may only be 5.5-6 million tons, although it was initially estimated at 6.5 million tons. This may support meal prices somewhat, but demand for March-June deliveries will remain low if meat consumption in the country, and as a result, its prices, will not recover.