September 16, 2014 / 8:28 AM / 4 years ago

US soy exports to China could drop by quarter with crush-margins at 2-yr low

* Slowdown in China imports would drag on global soybean prices

* Soy companies losing $65/T in processing beans, worst since 2012

* China demand for soyoil, soymeal hurt by tepid economic growth

By Naveen Thukral and Niu Shuping

SINGAPORE/BEIJING, Sept 16 (Reuters) - Chinese imports of U.S. soybeans could plunge by as much as a quarter in the crop year that began this month after processing margins in the country fell to their lowest in two years, industry sources said.

The potential drop in shipments to the world’s biggest buyer of the commodity comes as the United States is gearing up to harvest a record soybean crop, piling more pressure on benchmark prices that this week hit their lowest in four years.

Any hopes that demand for the products churned out by China’s soybean processors would pick up in the next few months have been dashed by tepid growth in the world’s No.2 economy.

That has left processors to keep struggling with the so-called negative margins they have been hit with since February, meaning they cannot cover the costs of producing edible oil or animal-feed ingredient soymeal.

“The first half of the (calendar) year was the worst on record for the industry,” said a Singapore-based senior official at an international trading company, which owns soybean processing facilities in China.

“With the way things are, we don’t expect prices and demand to recover anytime soon,” said the executive, who declined to be identified as he was not authorised to speak with media.

Record soy imports in the 2013/14 crop year coupled with slowing demand from the livestock sector have resulted in a glut of soybeans in China, dragging processing margins into negative territory.

China’s crackdown on commodity financing trade has compounded the woes of an industry saddled with huge losses, prompting some importers to default on cargoes.

Those challenges did not filter through to January-July total soy import volumes, which climbed about a fifth from the year before to 41.68 million tonnes, as a raft of cargoes booked in advance arrived in China.

But they are expected to hit soybean shipments from October-December, historically the period when imports pick up.

And as the United States is set to start marketing its soybean crop at that time, it will initially be hurt far more than other exporters such as Brazil and Argentine which are yet to plant the crops they will market in 2014/15. China buys around 60 percent of soybeans traded in the world.

“This year, imports from the U.S. could fall by one fourth because of large soy stocks and poor margins,” said an analyst with official think tank, the China National Grain and Oils Information Center. China imported around 27 million tonnes of U.S. soybeans in 2013/14.

He added that Chinese imports from the United States had been particularly high in 2013/14 as processors shied away from South American purchases due to industrial action at ports in Brazil.

A second trade source in China said purchases of U.S. beans could drop to 23 million tonnes in 2014/15 as the industry faces mounting losses.

Chinese processors are losing almost 400 yuan ($65) JCI-SBMG-SHDNI by crushing 1 tonne of imported soybeans in Shandong, the hub of China’s soybean industry, according to data from private consulting firm Shanghai JC Intelligence.

Soyoil in Shandong JCI-SOA-RIZH is trading near its lowest since 2006 as rising global edible oil supplies pressure prices.

Soymeal JCI-SBM-RIZH climbed to a one-month high in early August, but has since been on a downward trend, last week dropping to its weakest since March.

That could prompt the U.S. Department of Agriculture to reduce its estimate for total Chinese soybean imports in 2014/15.

China is forecast to import 74 million tonnes of soybeans in the year to September 2015 up from an estimated 69 million tonnes this year, according to the agency. ($1 = 6.15 yuan) (Editing by Joseph Radford)

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