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China driving revival in soybean crush margins, says Bunge


China is driving a revival in soybean crush margins, thanks to a boost to its own meal needs, thanks to the surprisingly rapid recovery in its hog herd, and to those of countries it is increasing meat imports from, Bunge said.


Greg Heckman, the Bunge chief executive, reported industry soybean crush margins at about the mid-$20s per tonne in China, Europe and the US, “high single digits” in Brazil and “low single digits”, below earlier levels.


Bunge itself counts its average crush margin at about $34 per tonne, although reported a $29-per-tonne figure last year, thanks to dents to meal demand from the plunge in China’s hog numbers forced by African swine fever (ASF).


However, “even in the last couple of weeks, we’ve seen the curve start to improve a little bit,” Mr Heckman told investors.


In the Chicago futures exchange, the September soybean crush has recovered from a contract low of $0.69 ½ a bushel on July 16 to settle at $0.80 ¼ a bushel on Wednesday.


‘Couple of big drivers’

The recovery reflected a “couple of big drivers around meal demand” both related to China, Mr Heckman said.


One has been the “imports of protein into China, which, of course, has helped the meal demand in those exporting countries.”


Customs data last weeks showed Chinese pork imports soaring 128% year on year to 400,000 tonnes in June, as the country attempts to replace supplies lost to ASF, with beef imports up 31% at 180,000 tonnes.


Mr Heckman added that another “big” driver was “how quick China’s sales of hogs have come back. Their meal demand has recovered much more quickly than any of us have thought”.


Double boost

That revival in Chinese demand reflected not just a recovery in China’s hog headage, but in increasing use of meal in rations too – a reflection of the fact that the revival is being led by large-scale producers rather than back-yard operators more opportunistic in their feed sources.


“We’ve not only seen the animal numbers, but the inclusion rates in China that we have seen is driving the demand there,” Mr Heckman said.


“It is the inclusion rate because it’s the professional commercial operations that are coming back up.”


Meal demand was also being helped by “historically high numbers” of US chickens and pigs, at a time when output of distillers’ grains, or DDGs, a rival to soymeal as a high-protein feed ingredient, was constrained by the downturn in the ethanol industry, which manufactures DDGs as a byproduct.


Mr Heckman also said that demand for soyoil, the other main product of soybean processing, had “come back quicker than we thought here in the US”, thanks to rebounds in both its key foodservice and biodiesel markets.


Earnings per share

The comments followed the release by Bunge of forecast-beat second-quarter results, and an upgrade to 2020 earnings expectations, which initially sent its shares soaring, although they retreated back to $45.33 in late deals, up 1.6% on the day.


The group on the investor call said that - having in May expected its core agribusiness division to see a drop of some $50m in operating profits this year - it now expected a $100m increase, factoring in an “outstanding performance” in the April-to-June quarter, and signals from “the current market environment and forward curves”.


The $100m equated to an extra $0.55 per share in terms of full-year group earnings per share.


Nonetheless, added to analysts’ $2.83-per-share earnings forecast, coming into the quarter, that Bunge quoted, the profits fillip would still leave Bunge’s full-year result show of the $3.70 per share that the group guided to at the start of the year.


According to Refinitiv, Wall Street had, coming into Wednesday, an expectation that Bunge would announce full-year earnings equivalent to $2.79 per share.

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