Sinograin sells large volume soymeal to hedge Brazil cargo purchase

China’s state soybean stockpiler and crusher Sinograin sold a substantial volume of soymeal in the domestic market on Wednesday to lock in profits for their latest purchase of Brazilian soybean cargoes.

According to three China-based soymeal traders who spoke with Sitonia Consulting, at least 100,000 tons of soymeal basis for delivery between July and September 2022 were sold by Sinograin. The company continued to offer more volume on Thursday.

The traded price level was said to be 130-150 yuan/ton ($19.4-22.4/ton) on top of September 2022 soymeal futures contract on Dalian Commodity Exchange which closed at 4,118 yuan/ton ($615/ton).

At this price, Sinograin could lock in a margin of approximately $10/ton given that the company contracted two July 2022 shipments of Brazilian soybean cargoes at a premium of 285-290 c/bu against July CBOT soybean futures.

However, more than 90% of the soymeal sold by Sinograin on Wednesday were in eastern and southern China. Buyers were mainly local soymeal trading houses instead of animal feed producers.

“With such high basis, trading houses will be more active than feed producers,” one trader commented.

This still reflects a “cautious” mindset across China’s soybean, soymeal and hog sectors even though soybean crush margins improved significantly in the past two weeks and hog prices rebounded sharply since April.

The animal feed demand from hog breeders as well as meat demand from Chinese consumers have been dampened by ongoing Covid restrictions in China.