China soymeal basis hit new record as Covid batters the north

Cash basis for soymeal trades in the Chinese domestic market rebounded sharply this week as stringent measure against Covid outbreaks in northern China continue to interrupt flows of the product.

Spot basis for soymeal in the city of Tianjin in northern China climbed above 900 yuan/ton (against Dalian futures) on Tuesday, hitting the highest level on record, according to traders.

This was up nearly 50% on the day.

Basis in Dalian, the trading hub for China’s northeastern region, also reached a new high of nearly 830 yuan/ton, gaining almost 20% from the previous day.

Higher basis in the north also lifted market rates in eastern and southern parts of the country with spot basis in Zhangjiagang up 200 yuan/ton to 810 yuan/ton and those in Guangdong province up about 100 yuan/ton to 700 yuan/ton.

The average soymeal basis in China has more than tripled since the start of 2022 amid slow soybean purchases and resurgence of Covid cases.

A large proportion of China’s oilseed crushing capacity locates in northern part of the country, representing more than half of the total capacity.

The current wave of Covid outbreaks raging across many cities and provinces is causing serious disruptions to the domestic soymeal supply chain.

Crushing facilities have been ordered by local authorities to either ease operation or shut down.

Moreover, buyers’ access to procure soymeal from crushers has been limited, piling more pressure on to animal feed companies and livestock farming enterprises that are already burdened by sizable financial losses this year.

Animal feed producers have been maintaining a low inventory this year due to poor demand from the hog industry, making them vulnerable to short-term supply disruptions.

Covid cases in China continue to rise with more than 3,900 cases reported on Wednesday.

The major corn growing province Jilin remains the epicenter reporting over 2,300 new cases, followed by Hong Kong (1,058 cases) and Fujian province (116 cases).