ASF Causes Train Wreck in Slow Motion in Soybean Market

Soybeans in hand ( MGN Image )

The April 9 World Agricultural Supply and Demand Estimates (WASDE) report came in a little friendlier than some of the more bearish estimates INTL FCStone Financial, Inc., expected.
  
USDA barely touched the soybean balance sheet and did not make any changes to their export estimates reflecting Chinese demand, says Nick Buyse of INTL FCStone Financial, Inc. USDA’s Ag Forum estimates for the 2019-2020 new crop projects soybean acres about 5 million lower from last year at 84.6 million acres. 
 
Buyse says the Ag Forum estimates for soybean exports next year at 2.025 billion bushels is extremely optimistic.

“This completely ignores the demand destruction taking place in China today with the African swine fever (ASF) epidemic devastating their hog herd,” he adds.
 
He believes the evidence is clear when you look at the sharply negative soybean crushing margins in China. (see chart) This would indicate soybean meal demand in the country is drastically lower. 

China Soybean Crush Margins

“In one of the most intensive hog production regions in China, Shandong, our colleagues are estimating feed demand is down by a shocking 50%. It’s short-sighted to think that there’s only been one case of ASF made public by Chinese officials in the Shandong region,” he says.
 
He easily sees a 2 billion bu. carryout in soybeans for the ’19-‘20 new crop as being a possibility. 
 
“The reality is this soybean market is a train wreck in slow motion,” Buyse says. “Our Shanghai colleagues are saying Chinese hog farmers are killing more sows to prevent ASF from spreading. They are hanging onto the existing piglets and attempting to fatten them 30% to 50% more than normal to get as much pork off their carcasses as possible.” 
 
If they are killing off the sows, Buyse says, that will be to their long-term detriment. FCStone expects China’s herd to take at least four to seven years to recover back to normal, and that may be optimistic.
 
“China will see their peak pork shortage in 2020 as we will simply have less sows available for breeding down the road,” he adds.

Corn futures were trading about four cents lower coming into the report this morning and were up slightly a few hours later. In addition, USDA raised their corn carryouts by 200 million bushels to 2.035 billion bushels from March’s report. This was accounted for by a 75-million bu. cut in exports and a 75-million bu. cut in feed demand. Finally, with the horrible ethanol margins this year, demand was cut by 50 million bu. 

Comments in this article are market commentary and are not to be construed as market advice.


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