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ANALYSIS: "All hands to the trough" is the exhortation from China's Premier


Agricommodity futures have got some "big gun" bullish backing, thanks to the publication by Goldman Sachs, the investment bank, of research forecasting a 15.5% return on commodities over the next 12 months. Commodities remain the "best hedge against inflation" according to the bank.


Admittedly agricultural commodities are not Goldman’s star pick - that accolade goes to energy and industrial metals - but a forecast 4.8% return on agri futures is not to be sneezed at.


And a star performer within the agri spectrum should be soybeans, thanks almost entirely to China.


China as always


Soybean futures on China’s Dalian Commodity Exchange hit a record high on Monday this week, of Yuan 6,058 ($937.23) per tonne, almost twice the price to be had on CBOT, where soybean futures have in any case gained around 60% in the past 12 months. The rise in soybean futures is almost entirely due to elevated demand from the Chinese pig feed sector, soymeal being the preferred feed.


China does not allow genetically modified (GM) soybeans to be planted, so most of its own crop of around 18m tonnes goes into human foods such as tofu and soymilk. Its GM soybean imports - which probably topped 100m tonnes last year - are largely from the US and Brazil and are crushed locally for animal feed.


Soybean stocks are clearly low in China. Yet so are corn stocks relatively low. According to the latest Wasde from the USDA global corn ending stocks for 2020-21 (excluding China) will be at an eight-year low. When including China the ending stocks are forecast to be at a seven-year low.


Swine fever rears its head


There has been a resurgence in China of African Swine Fever (ASF), which is lethal to pigs. ASF appears to be spreading from north of the country to the south.


The CEO of the British livestock genetics firm Genus, which is participating in China’s pig re-stocking after AFS cut the herd size in half, said in late February that there has been a "lot" of the disease over the past winter.


ASF outbreaks are accelerating the trend in China (and other parts of Asia) towards commercial pork production, which in turn should increase the demand for commercially produced animal feed (and less backyard pork production raised on food scraps).


The Brazil factor


Another key factor underlying soybean price strength is the slow start to Brazil’s harvest this year. By the third week of February Brazil had harvested around 9% of its soybeans, less than half year-on-year.


Drought delayed planting in late 2020 and almost constant rainfall since then has disrupted the soybean harvest. Expectations are that Brazil will harvest around 133m tonnes of soybeans this year, but its exports will get off to a belated start.


The delays will mean that US farmers could steal an exporting-to-China march on their major rivals from Brazil. But, as with corn, global soybean ending stocks are seen by the USDA as falling in 2020-21, to 83.4m tonnes.


Globally, soybean utilisation is around 355m tonnes, of which China accounts for a third. China’s soybean usage rose by 71% between 2009-18.


While a record number of US acres given over to corn and soybeans is likely in 2021 - 92m acres of corn against 90.8m in 2020, and 90m acres of soybeans versus 83.1m in 2020 projects the USDA, it’s our forecast that China will this year remain a heavy importer of both crops, as it still needs to up its pork output.


The Chinese Premier, Li Keqiang, has just told a conference that China should "stabilise" its hog production and ensure national food security. The authorities in Beijing are clearly anxious about food supply. Given the inability to feed itself from its own crops, they are right to worry.

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