Analysis of Oils and Oilseeds: Bearish Reports Drive Prices Back to Range-Bound Trading
CBOT soybean complex prices rose initially before falling this week. Chinese purchases and hot weather in the U.S. Midwest supported gains, but a bearish supply and demand report on Friday triggered profit-taking, narrowing the advance. BMD palm oil and domestic edible oil prices moved sideways, pressured by ample spot supplies and Indonesia's B50 biodiesel mandate falling short of expectations.
Key Drivers: The USDA's July WASDE and MPOB's June reports were both released this week, with bearish outcomes. The USDA raised its U.S. new-crop soybean production estimate but also increased exports, leaving ending stocks unchanged. It also raised global sunflower seed and canola production forecasts, as increases from producers like Russia and Canada outweighed reductions from Ukraine. High crushing margins coupled with expanding capacity are transmitting ample oilseed supply pressure downstream to meals and vegetable oils, making product-side supply pressure more prominent. The MPOB report showed Malaysian palm oil production rose 8.08% month-on-month in June, while export growth lagged, leading to end-month stocks of 2.5441 million tonnes. This marks the third consecutive month of stock accumulation, placing inventories at relatively high levels for the period. Sluggish export demand is the primary reason for the larger-than-expected stock build. High-frequency data indicates Malaysian palm oil exports for July 1-10 rose 1.6% to 5.12% month-on-month. However, overall weak export demand and competitive pressure from Indonesia limit the upside for Malaysian exports. Based on this data, Malaysian palm oil lacks the ability for significant active destocking in August, meaning the loose supply structure is unlikely to change. Regarding weather in oilseed growing regions, overall conditions appear favorable. The periodic heat in U.S. soybean regions is expected to ease, with yield potentially slightly below trend. Canadian canola faces risks from potential waterlogging during growth and rising temperatures during flowering; agencies forecast canola yield below last year's but above the five-year average. Weather in Ukrainian and Russian regions is generally normal, with yield estimates unchanged. Overall, there are no major weather issues in key oilseed regions, providing little fodder for weather-related rallies.
Summary: Influenced by ample oilseed supplies and a lack of weather catalysts, expectations for a loose global oilseed supply are strong. CBOT soybeans and domestic soybean product prices may struggle to break out of their range-bound patterns in the near term, as the market continues to digest supply pressure over time. It is advisable to continue monitoring growing region weather and yield expectations. In the edible oils market, particularly for palm oil, the pattern of near-month weakness and distant-month strength persists, with significant near-term supply pressure showing little sign of easing. Close attention should be paid to when inventory inflection points might appear in domestic and international vegetable oil markets.
Egg Market: Seasonal Strength Expectations Support Futures Rally
Egg futures prices continued their upward trend overall this week. On Monday, the main 2608 contract opened higher and strengthened, posting a daily gain of 3.34%, and subsequently traded with a firm bias. By Friday's close, it had accumulated a weekly gain of 4.94% to settle at 4,780 yuan per 500 kilograms. The 2609 contract also strengthened throughout the week, breaking above its early-June high on Monday and continuing its ascent. By Friday's close, it had gained 4.77% for the week, settling at 4,638 yuan per 500 kilograms, marking a new high since October 2023.
Spot egg prices rose in the first half of the week, stabilized mid-week, and resumed gains approaching the weekend. As of July 10, the daily average price for brown-shell eggs in China was 4.47 yuan per jin, up 0.24 yuan from the previous week. Early in the week, with low inventory in producing areas and industry participants holding bullish expectations, procurement enthusiasm improved, market circulation was smooth, and prices gradually climbed. Later in the week, as traders adopted a buy-as-you-sell approach, spot prices stopped rising and traded sideways. Approaching the weekend, spot egg prices resumed their upward movement.
According to monthly data, China's layer flock inventory in June increased slightly by 0.31% month-on-month but was down 4.25% year-on-year. Following seasonal patterns, laying rates seasonally decline under hot and humid conditions. Considering both inventory and laying rates, the supply side continues to support egg prices in the short term. Based on chick placement data, placements increased in April-May. According to the growth cycle, this corresponds to a month-on-month increase in new hens coming into lay around August-September. Before that, the supply side is likely to continue supporting egg prices. On the demand side, as southern China exits the rainy season, demand is expected to gradually recover. Subsequently, demand is expected to be boosted by back-to-school and pre-Mid-Autumn/National Day holiday stocking, marking the peak seasonal demand period for eggs. Demand will thus provide support for spot egg prices. Considering supply and demand fundamentals, a cautiously optimistic outlook for eggs is maintained. Monitor the impact of old layer culling, cold storage eggs on spot prices, and market sentiment on futures.
Corn Market: Weather Supports Gains in U.S. Grains; Domestic Prices Mixed
In international markets, U.S. wheat and corn rose this week, with grain prices moving higher in tandem. Early in the week, U.S. wheat followed gains in corn and soybeans, supported by weather concerns in the U.S. and Europe. The U.S. winter wheat good-to-excellent rating was 26%, a record low but matching analyst expectations. Winter wheat harvest reached 59%, while the spring wheat rating was 57%, down from the previous week. On Tuesday, CBOT wheat continued to climb to a two-week high, with weather remaining a key supportive factor. Data showed the U.S. corn good-to-excellent rating held steady at 67%. Pre-report expectations suggested U.S. corn ending stocks data could come in below expectations; a slight reduction in the U.S. corn yield could also lead to tighter carryout stocks. Mid-week, U.S. corn rose to a one-month high, supported by forecasts for crop-stressing heat in the U.S. Midwest later in July and improved U.S. export demand. Prices then pulled back from highs in subsequent sessions, trading range-bound ahead of the July USDA report as bulls and bears reached an impasse.
Domestically, corn market prices were mostly steady with a weak bias this week. As of July 9, the national weekly average corn price was 2,358 yuan per tonne, down 7 yuan or 0.30% from the previous week. Regionally, weaker futures prices provided some guidance for Northeast corn prices. Traders in producing areas sold based on market conditions, but transactions were somewhat subdued. Many deep-processors in the Northeast are undergoing maintenance shutdowns and hold relatively high inventories, limiting their procurement volumes. Prices in North China were generally steady to weak. As trading progressed, traders' willingness to hold out for higher prices weakened. Coupled with increased difficulty storing some open-air grain, traders' overall willingness to sell increased. Downstream enterprises purchased mainly based on immediate needs, maintaining a relatively loose supply-demand balance. Prices in consumption areas were also generally steady to weak, with a slight downward shift in the price center. Substitute feed ingredients continue to divert demand, with their share in feed formulas increasing, persistently suppressing corn consumption space. Downstream feed enterprises show no willingness for large-scale stockpiling, adopting a wait-and-see approach on orders. Trader offers generally softened, and shipment pace was slow. Overall, the corn market remains in a stalemate in July, awaiting new direction from weather. International grain costs have risen due to weather concerns, while domestically, weather developments, along with subsequent changes in trader selling pace and potential policy auction schedules, warrant close attention.
Live Hog Market: Widening Heavy Hog Premium Drives Prices Higher
Domestic live hog prices rose initially before declining this week. As of July 9, the national average hog price was 11.24 yuan per kilogram, up 0.8 yuan from the previous week. The benchmark delivery region price in Henan was 11.48 yuan per kilogram, up 1.25 yuan week-on-week. In the early part of the week, a reduction in suitably heavy hogs available for slaughter tightened market supply, and breeding operations held firm on prices. Downstream buyers were forced to raise purchase prices, gradually eliminating lower offers, and hog prices continued to climb. However, after prices reached higher levels, terminal demand follow-through was limited, and downstream resistance to high-priced hogs gradually emerged, leading prices to stop rising and fall back later in the week.
Data shows that as of July 3, the sales price for replacement gilts was 1,407 yuan per head, down 13 yuan from the previous month. On the supply side, gilt sales plans from breeding farms are normal, and piglet supply is stable. On the demand side, as hog prices recovered, downstream confidence strengthened, improving the enthusiasm of finishing farms to restock piglets. Gilt sales from breeding farms proceeded smoothly, supporting higher piglet prices. As of July 9, the average piglet price was 173 yuan per head, up 26 yuan from the previous week. In June, sample statistics showed culling of breeding sows increased 11% month-on-month, while sales of replacement gilts increased 6.55%. Both culling and additions increased, but the increase in culling outpaced the increase in gilt sales.
This week, the average purchase weight increased while the average slaughter weight decreased. As of July 9, the average live slaughter weight was 123.47 kilograms per head, down 0.14 kilograms from the previous week. Among provincial average transaction weights, most regions saw declines, with only slight increases in Jiangsu, Hebei, Liaoning, and Shanxi. Breeding operations still show some willingness to increase weights and are not actively selling, keeping the average slaughter weight on a downward trend.
Data shows that as of July 9, profits for farrow-to-finish operations were -107 yuan per head, with losses narrowing by 98 yuan from the previous week. Profits for piglet finishing operations were -16 yuan per head, with losses narrowing by 87 yuan week-on-week. Low inventory of heavy hogs and stronger prices have widened the premium for heavy hogs over standard weights. This has increased overall willingness among breeders to hold back hogs and restock for secondary finishing. The supply reduction exceeded expectations, supporting the week-on-week increase in the average weekly price. Although both piglet purchase costs and feed costs have risen within the corresponding breeding cycle, the increases are far smaller than the rise in hog prices, leading to improved profits for both models week-on-week. Piglet finishing profits are now close to the breakeven line.
Slaughter volume at slaughterhouses decreased week-on-week this week. Sample data shows that as of July 9, the operating rate at sample slaughterhouses was 34.45%, down 0.15 percentage points from the previous week. Willingness to sell among breeding farms was moderate. As temperatures rose, downstream pork stocking demand was limited, leading to a significant reduction in slaughterhouse orders. Additionally, as hog prices rose, slaughterhouses reduced their cutting volumes, contributing to the decline in overall slaughter volume.
Overall View: Widening heavy hog premiums have driven hog prices higher, lifting futures prices out of their previous low range. From a fundamental perspective, the overall pattern of relatively ample hog supply has not yet changed. Furthermore, influenced by hot weather, terminal demand remains weak. The sustainability of the price increase warrants close monitoring of demand-side feedback.
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