China soybean buying focus shifts to Q1 2022
Lower pork prices in China had a spill-over impact on crush margins in the country as both DCE soymeal and soyoil futures slipped from their recent strength in late November this year. Despite rebounding in November, soybean futures remain at depressed levels near the bottom of their yearly range.
The bullish trend in soybean oil futures may have shifted as well as the contract was not able to find any buying interest above 10,000 yuan per ton. After reaching a peak of 10,406 on October 21, the market has been trending lower and has now fallen below several major moving averages, sending bearish technical signals to some traders.
Crush margins for prompt shipments flipped from $15-20/ton profit in early November this year into $5-10/mt losses in December.
Despite shifting their buying interest from US Gulf December shipment to Brazil Q1 2022 shipment, Chinese buyers were mostly quiet in the cargo market this week due to the impending release of USDA’s WASDE report this Thursday.
One March shipment from Brazil’s Santos was reported to have traded late Tuesday, but no details were confirmed.
Market indications for the shipment on CFR China basis were heard at 187-190 c/bu over March 2022 CBOT soybean futures.
Corn quality issues lingers amid wet weather, high energy price
The quality of China’s 2021/22 corn crop remained a concern as weather was wetter than normal during harvest season, high energy costs limited grain-drying efforts, and warmer temperature elevated the risk of molding.
One woman in central China was reportedly diagnosed with a respiratory fungal infection after returning to her hometown to help harvest corn in the autumn. Doctors at the local hospital identified the source of the infection as coming from aspergillus flavus, a common mycotoxin in corn.
The market should get a better understanding of the corn quality over the next few weeks leading up to the Chinese New Year holiday. Many farmers would typically sell a large portion of their crops before the holiday to raise cash and cover year-end bills.
Grain sales in China continued to lag this year with some estimating the sale pace at 20% behind last year.
The grain bureau of Liaoning province in northern China reported their purchases of autumn harvest were down 54% year on year.
Food conglomerate raises price as inflation hurts margins
Major packaged food producer Qianwei Yangchu Food (whose clients include prominent brands such as KFC, Pizza Hut, and Haidilao) announced it will raise prices by 2-10% from December 25 this year.
This is the tenth publicly listed company in China’s food industry to announce price hikes in the past two months. Many firms have been affected by rising raw material costs as prices of food ingredients like soybeans and soybean oil remained at a high level.
Many companies in China have been reluctant to raise prices, but their margins have begun to tighten as other overhead costs such as labour and transportation costs have risen.
In October, China’s producer price index hit a record high of 13.5%. These prices hikes will likely contribute to consumer inflation over the next few months as wholesalers and retailers face higher input prices.
Earnings Time – November performance of key publicly listed companies
Hunan Xiangjia Animal Husbandry – live poultry sales for November of 3.7 million birds, down 1.2% from the previous month but up 18% on the year. Average sales price was 11.95 yuan/kg which is up 1.6% m/m and up 17.5% y/y.
Shandong Minhe Animal Husbandry – Sales of chicks were down 4% m/m and down 13.5% y/y. Sales revenue was down 52% y/y.
New Hope Group (top hog producer) – live hog sales were 904,300 heads during the month, which was down 24% m/m and down 34.7% y/y. Revenue was 1.5 billion yuan which was up 15.2% m/m but down 57.6% y/y. Average prices were 15.5 yuan/kg, up 36.3% m/m but down 45.2% y/y.
Tech-Bank Food (Tianbang) – hog sales totaled 566,300 with revenue at 1.02 billion yuan, up 26.8% m/m. Average hog sale price was 16.4 yuan/kg, up 30.7% y/y.
Chinese currency firms despite PBOC expansionary measure
On Wednesday, the renminbi reached the strongest level against the US dollar since mid-April 2018 despite the People’s Bank of China (PBOC) cutting the reserve requirement ratio (RRR) earlier this week in an attempt to inject more liquidity into the world’s second largest economy.
PBOC announced a cut of 50 basis points (0.5%) from the current RRR level, freeing up to 1.2 trillion yuan (equivalent to USD 188 billion) into the market.
This was also against the backdrop of a stronger US dollar that has firmed against most G10 country currencies during the second half of 2021.