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Bunge upbeat on Chinese soy crush margin prospects

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Bunge remained upbeat on prospects for China's soybean crushing margins, despite signalling some delay in their recovery, with the curbs on imports of US distillers' grains adding to reasons to expect a revival.

Soren Schroder, the Bunge chief executive, who in May forecast that the April-to-May period would be a "transition" quarter for Chinese soybean processing margins, acknowledged that they in fact "remain weak".

Indeed, the US-based group, one of the world's biggest oilseed processors, had seen "admittedly a very negative crush environment in the first half of the year", he said.

"Our crush volumes… were clearly down," he added.

'Improving situation'

However, "I think we are clearly in [an] improving situation", Mr Schroder said, with margin prospects boosted by recovering profitability among Chinese livestock producers at a time when soybean supplies have been swollen by a record quarter for imports in the April-to-June period.

"Underlying fundamental demand for proteins in China is strong. Livestock profitability is back in positive territory and offtake [prospects are] very strong."

Rabobank last week forecast a "strong" recovery in prices of pork, China's staple meat, from later in the July-to-September quarter, lifted by the arrival of the high season for demand at a time when herd numbers are low.

China's hog herd, by far the world's biggest, was 4.4% lower in May than a year before, with sow inventories down 7.5%, indicating weak potential for rebuilding the herd.

Prospects for China's pork producers "are turning positive" after a "very difficult" first half of 2014, the bank said.

'Positive element'

China's, effective, ban on imports of US distillers' grains (DDGs), through demanding that supplies be certified free of a genetically modified Syngenta corn variety, adds an extra support to margins.

DDGs, a byproduct of corn ethanol manufacture, offer an alternative to soymeal as a high protein feed ingredient.

"Clearly, the reduction in [Chinese] DDG imports, if that continues, will be to the benefit of soymeal [demand]," Mr Schroder told investors.

"So that will be a positive element as well" for crushing margins.

It now appeared that, for margins, the current July-to-September quarter would "be a transition, the fourth quarter should be good and, in all likelihood, we would have a good first quarter [2015] as well in China".

'Cheapest origin'

However, Mr Schroder - speaking after Bunge unveiled forecast-beating profits, sending its shares soaring – had some consolation for US soy processors, now facing growing competition for soymeal from domestic DDG supplies swollen by the lack of exports to China.

While the dynamic "will have most likely a negative impact on soymeal domestic consumption… on the other side, the US is the cheapest origin for soymeal exports in the world.

"We do expect a record October/March shipment programme out of the US."

The US sold 707,400 tonnes of soymeal for export last week for 2014-15, which starts in October for the feed ingredient, taking total commitments to 3.66m tonnes.

A year ago, the US had, for export, sold 1.45m tonnes of soymeal forward.


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