An African Swine Fever Bottom

An African Swine Fever Bottom image

An African Swine Fever Bottom

10/04/2019 | Author: Matt Smith

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Have we hit bottom? That’s the question many in the global oilseed trade are asking themselves as we inch closer to the end of a tumultuous 2019. In a January 29th blog post, Preparing for the Worst, we suggested early-year offtake trends pointed toward an 82.90 million tonne yearly import figure, while the USDA forecast sat at 90 million tonnes.

The USDA eventually met our forecast, with their most recent import figure coming in at 83mn tonnes. We believe the negative impact on soybean imports caused by African swine fever is bottoming out and the trend may begin to stabilize or improve slightly from here. While ASF is still an ongoing issue, the rate of reported outbreaks has fallen, as indicated in the chart below from the World Organization for Animal Health.

(Number of ASF reported village by region by onset month* in China: Source: Veterinary Bureau, MARA, China.)

In the first six months of the 2018-19 Chinese marketing year, offtake was down 17 percent on average versus 2017-18. In the last six months of the marketing year, offtake was down 8 percent, with most of that decline coming in May and June. Imports for the last quarter of the marketing year were down only 2 percent from last year. Our data suggest that Chinese imports for September came in just short of 7mn tonnes versus 8mn tonnes last year. Moreover, October offtake looks to be upwards of 6.5mn tonnes versus 6.9mn last year and November offtake is already projected to be more than 2mn tonnes, based on laden vessels en route to China so far this month.

While we still contend the US is likely to do more Chinese soybean business through January due to low exportable supplies in Brazil, price spreads have narrowed significantly between global exporters. Brazilian beans are now only at $6 per tonne premium to the US delivered into China, Argentina remains a discount to Brazil and Black Sea supplies are FOB-ing around $345 per tonne, which lays the vessel into China around $375. Ukraine supplies will be limited, with monthly loadouts to all destinations likely to reach only around 200,000 tonnes per month through the end of the year.

Bottom line: We believe recent offtake data suggests the feed issue in China is stabilizing and this is good news for global soybean suppliers. In addition, the US remains in a good position to supply China through January given Brazil’s estimated 10mn tonnes of exportable supplies against the projected needs of China at roughly 25 million tonnes.

About The Author

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Matt is a Director of Commodity Research at ClipperData. Matt specializes in extracting key themes from technical and fundamental analysis of the global energy market, and communicating these through daily and weekly deliverables. He also provides oil and natural gas analysis and commentary to national and international media outlets that include CNBC, Fox Business, Russia 24, the Wall Street Journal, MarketWatch, AFP, Bloomberg, Reuters, and the Oil Daily. Prior to joining ClipperData, he worked for eight years at Schneider Electric / Summit Energy as a Global Commodity Analyst, where he also founded and authored the blog, Energy Burrito. He started his career at the Royal Bank of Canada in the UK, spending eight years with the bank. During that time, he managed $55 million in assets as a portfolio manager and financial analyst.