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China’s soyoil hit near 10-year high, crush margins swing back to profit

China’s soybean oil prices hit a near 10-year peak this week on tight supply and robust demand, lifting key soybean crushing margins to six-month highs despite sustained weak demand for soymeal from China’s battered hog sector.

The most actively traded soybean oil futures on Dalian Commodity Exchange has climbed 30% since mid-June to hit 10,278 yuan ($1,606.09) per tonne on Thursday, highest since October, 2012, before edging down on Friday.

Soyoil’s rally has helped soybean crush margins in China’s top soy processing hub Shandong rise to their strongest since March, and fully recover from their plunge to record lows in June due to weakening soymeal demand from loss-making hog producers.

“Soybean crushing margins are recovering mainly thanks to the rising soybean oil prices,” said Teng Hao, agriculture analyst with Chinese commodity consultancy Mysteel.

“While pig prices fluctuate around low levels, demand for soymeal is not very good. Crushers would try to ensure profits from soyoil.”

Crushers in Shandong province, a key processing hub in northern China, now make around 150 yuan with each tonne of soybean crushed, up from record losses of 650 yuan in June.

Crushers buy soybeans to crush into soybean meal to feed livestock and soyoil for cooking, with the ratio of the two products at roughly 80:20.

A collapse in hog production margins to record lows in 2021 due to massive volumes of heavy pigs being sent to slaughter has stifled demand for soymeal, however, and resulted in a drop in China’s demand for soybeans in recent months.

FLYING OIL

China’s soybean oil rally has been driven by both domestic and international markets, analysts and traders said.

“The (Chinese) market is expecting a peak demand season for oils as it gets cold. On the supplies end, crushers cut operations on power curbs in many areas, which directly pushed up prices,” said Teng, the analyst.

Crushers in parts of northern China were forced to shut down following government orders to curb electricity use amid an unprecedented nationwide power crunch.

“Soybean oil inventories are low at crushing plants in general, and we should have (soyoil) shortage through second half of the year,” said a manager with a crusher that has plants across China.

Weekly soybean oil inventories by October 15 were at 933,800 tonnes, down 0.5% from last month, and down 14.5% from a year earlier, according to Mysteel data.

Malaysian palm oil futures and Zhengzhou rapeseed oil futures have also scaled multi-year or record highs recently, and are expected to remain well supported going forward by a mix of production issues and rising global use.

RECOVERING MARGINS

With soybean imports expected to stay muted through October and November, China’s soyoil inventories are expected to stay tight and lend support to crush margins.

“Profit from soybean oil is so good at the moment, I think crushers all want to produce and sell as much soyoil as possible,” said the crushing plant manager.

“But that means soybean meal stocks are building up on the other hand,” he said about the unavoidable rise in soymeal supplies during the soybean production process.

Pig producers in top producer Sichuan currently lose around 84 yuan from each pig raised. China’s agriculture ministry said pig prices could fall further next year if production is not substantially reduced.
Source: Reuters (Reporting by Hallie Gu and Gavin Maguire; Editing by Rashmi Aich)

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