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China is once again under severe pressure with the registration of new cases of Covid-19, according to TF Agroeconomic Consultancy. The Asian giant adopted a “Zero-Covid” policy and declared lockdown in several parts of the country – but promised “financial help” for the most affected sectors.
China recorded 4,130 new local cases of Covid-19 last Thursday, March 17 alone, in addition to a peak of 5,154 cases on Tuesday, March 15. Chinese authorities have estimated that about 90% of the cases are the Omicron BA.2 variant, which is highly infectious. The majority of new cases are asymptomatic and detected in mass testing, which has been a challenge to the Zero-Covid-19 policy.
“For us, this is important because it directly affects food consumption, and by extension soybeans”, says senior analyst at TF Agroeconomic, Luiz Pacheco. Check out what the Chinese are doing and how it can affect your business:
- RESTAURANT/SCHOOL INDUSTRY: The restaurant industry in China continues to struggle with Covid-19 lockdowns, which are reducing overall food consumption. The Shenzhen Culinary Association yesterday called for financial help, lines of credit and reductions or forgiveness of rent arrears. Large restaurant chains announced shutdowns for a month, zero revenue, zero consumption. Schools are also closed, zero consumption of snacks, an important follow-up in the consumption of meat and oils. Government events are also on hold, an important source of revenue for the food service.
- FALL IN DEMAND FOR OILS AND MEAT: The effect of all this is a drop in the week for oils and pork. Pig farmers in China ended the week with losses of $60 per head of animal slaughtered. The pig-corn exchange ratio is below 1 to 5, an index considered critical by the Chinese USDA. In soybeans, China bought very little this week. Traders are talking about 15 boats versus an average of 25 boats over the last two weeks. But this only worsens the stock situation and the inverse of the bran and oil price curves.
- DRIVERS: For the soybean and corn chain, the situation is also difficult. Truck drivers are one of the communities in the sights of health authorities. This week a driver carrying bran tested positive in a mass test, leading to the closure of the factory in Shandong. Drivers are unable to take corn from the rust valley provinces to the central and southeastern part of the country. Do consumers in the South have corn? If the answer is no, perhaps China will have to buy more corn in the US. Yesterday the USDA reported sales of 200 thousand tons to China for 22-23. In this case I think it is more like a PUT Ukraine – in case of a reduction in exports. I would say this PUT is within the money.
- TIGHT STOCKS: China has extremely tight stocks, but bran and oil futures do not rise on the DCE – Dalian Commodities Exchange. The futures curves in Dalian remain very inverted. What is the best strategy for processors? Buy from “hand to mouth”. This is what they have done, taking advantage of the margins against their spot market, which is very out of step with the stock market. Bran and oil stocks are minimal, as is processing. I wonder what the pigs and chickens in China are eating. I believe more and more that China is actually replacing bran with some other protein, or a combination of multiple strategies such as reducing slaughter weight, increasing the use of synthetic amino acids and reducing the percentage of protein in general.
- CORN VERSUS SOY BRAL: Another interesting debate is the value of corn in relation to bran in China. Corn has always been much more expensive. Currently, bran is becoming very expensive compared to corn, which reinforces the reduction in protein use and increased energy use – compensated with more lysine. According to the table, they should also be reducing the amount of oil in feed. In time this could reduce domestic corn stocks, which I believe.
By: Leonardo Gottems | agrolink
