Argentina Revisions Indicates Temporary Global Loosening
BMI view: We have revised down our forecast for soybean consumption in Argentina in 2013 as we expect high soybean prices to tighten margins for the local crushing industry. Weak soybean crush data from Argentina in 2012/13 will also be exaggerated by China's objective to develop its local processing industry, reducing Argentine imports. Also, Chinese soybean import growth will be subdued in H213 after the country engaged in a significant restocking policy. This will leave prices around current levels for longer than we previously expected, but we still expect more upside over the coming years.
We have revised down our forecast for soybean consumption in Argentina in 2013 as we expect high soybean prices to tighten margins for the local crushing industry, discouraging local soybean processing. As a result, we have revised down our forecast for soybean consumption in 2013 from 39.0mn tonnes to 34.4mn tonnes in line with local industry sources and latest USDA revisions. This represents an 8.0% year-on-year (y-o-y) decline. Ending stocks from the previous season (2011/12) were low by historical standards (at 18.2mn tonnes, compared to a five-year average of 21.2mn tonnes). Also, domestic soybean prices have been strong (in line with global prices) and have only started to moderate recently. Local industry sources indicated that soybean prices at various Argentine ports started to moderate at the start of August.
|Respite For Crushing Industry|
|Argentina - Soymeal, Soy Oil Production & Soybean Consumption ('000 tonnes)|
Weak soybean crush data from Argentina in 2012/13 will also be exaggerated by China's objective to develop its local processing industry. In fact, the USDA forecasts Chinese soymeal imports to drop by 82.3% y-o-y in 2012/13, while it sees soymeal consumption progressing by 5.0% y-o-y. Even if Chinese soymeal consumption grows at a slower pace in 2012/13 because of disease outbreaks in the livestock sector (bird flu) and a more subdued outlook for the economy as a whole, we see a decisive shift in processing from Argentina to local Chinese crushing factories. Similarly, soy oil imports should only progress by 3.1% y-o-y in 2012/13, while soy oil consumption is forecast to increase by 5.8%, according to the USDA.
|Supporting Local Processors|
|China - Soymeal, Soy Oil (LHS) & Soybean Imports ('000 tonnes, RHS)|
Ultimately, we believe Chinese soybean import growth will be subdued in H213 as we see increasing signs that the country will seek to deplete recently accumulated stocks and process the oilseed at home before it tenders for additional amounts on global markets. In fact, China ramped up imports in June and July and tenders in August indicate that another record shipment could be seen for this month. Local industry sources calculated that the country's soybean stocks were 3-3.5mn tonnes below previous years, encouraging the country to purchase more of the oilseed, especially as global prices are collapsing. However, because China imported 34.7mn tonnes between January and July, the country already imported 55.2% of its forecast production deficit in 2012/13.
|Front-Month CBOT Soybean (USc/bushel, weekly) & RSI (Below)|
Beyond the near-term horizon, we expect lower prices to help processors' margins and provide another boost to soybean and soymeal demand. Because we forecast the global soybean stocks-to-use ratio to recover only minimally in 2013/14, we believe most of the decline in prices is behind us. We will soon revise down slightly our forecast for soybean prices in 2013 in order to reflect the recent collapse in prices, and also our view for prices to bottom around current levels. More specifically, we maintain our view for global soybean demand growth, mainly driven by China, to accelerate in 2013/14, helping prices higher in 2014 and in the medium term.
|Notes: f BMI forecasts. Sources: 1 USDA.|
|Soybean Production, '000 tonnes 1||40,500.0||52,000.0||53,000.0||53,500.0||54,837.5||56,208.4|
|Soybean Consumption, '000 tonnes 1||37,400.0||38,870.1||40,474.7||41,662.2||42,387.1||42,618.5|