CMSC: China's soybean demand gap is basically being effectively met. Raw material fluctuations have some impact on pig feed costs.

CMSC released a research report stating that the significantly increased enthusiasm of farmers in South America and other regions for production is likely to lead to a substantial increase in the supply of soybeans in the new production season, which means that the demand gap for soybeans in China can be effectively met. Despite the positive intentions of the US towards trade negotiations with China, until progress is made, future soybean imports into China may mainly depend on South America and other regions, with a high probability of being effectively met. In a mildly pessimistic scenario, taking into account changes in the trade pattern of corn and soybean meal in the later period and a slight increase in frictional costs, the estimated impact of raw material fluctuations on the cost of pig feed is likely to fluctuate in the range of 0.3 to 0.5 yuan/kg. The main points of CMSC are as follows: The import demand for soybeans in China is expected to be substantially met Under the current tariff rate, the price difference between imported Bay of Dreams soybeans and South American soybeans to China has further widened, weakening the competitiveness of US soybeans. Even though Trump has expressed intentions for trade negotiations with China, until positive progress is made, future soybean imports into China may mainly rely on South America and other regions, with a high probability of being effectively met. Based on: 1. The bank estimates that with the steady promotion of soybean meal substitution and the stable production of domestic soybeans, the domestic soybean production demand gap may be around 85-92 million tons. 2. Based on the expected bumper crop in Brazil, the bank estimates that in 2025, the soybeans exported from Brazil to China have a certain probability of exceeding 80 million tons. 3. Excluding the US, global soybean exports to China in 2024 are about 82.89 million tons, which can cover 90-97.5% of the demand gap for soybeans in China. Considering the possibility of a significant increase in the enthusiasm of farmers in South America and other regions leading to a substantial increase in soybean supply in the new production season, the demand gap for soybeans in China can basically be effectively met. Is there a basis for a sharp rise in future soybean prices in South America? Taking into account the global supply and demand situation of the Shenzhen Agricultural Power Group, with expectations of a bumper crop in the main producing countries in the new season, global soybean supply is loose. The bank investigates whether soybean prices in South America will remain stable from the perspective of production costs and extreme weather: 1. Cost side: due to the decline in agricultural input costs and the gradual improvement of transportation infrastructure in Brazil reducing transportation costs, the bank believes that the cost side has limited upward support for soybean prices. 2. Weather: it is expected that the neutral phase of La Nia in 2025 will have limited impact on the soybean production in South America. Therefore, the bank believes that the soybean prices in South America will be led by basic supply and demand; even if considering changes in the global trade pattern of the Shenzhen Agricultural Power Group, in the short term, due to trade frictional costs such as logistics costs, there may be an increase, which may have a certain impact on soybean prices, but there is no basis for a significant rise in prices. Elasticity test In recent years, domestic corn spot prices have fluctuated in the range of 1700-3100 yuan/ton, and soybean meal spot prices have fluctuated in the range of 2500-5500 yuan/ton. With the addition of geopolitical conflicts, global food crises, extreme weather in major producing countries, epidemics, and other multiple force majeure factors, the prices of corn and soybean meal have only reached the upper limit of the range, with limited sustainability. Despite Trump's positive intentions for trade negotiations with China, there still remains some uncertainty. In a mildly pessimistic scenario, even considering changes in the trade pattern of corn and soybean meal in the later period and a slight increase in frictional costs, the impact of raw material prices on the cost of pig feed is likely to fluctuate in the range of 0.3 to 0.5 yuan/kg; the probability of a 1 yuan/kg increase in the cost of fattening pig feed is extremely low. Risk warning: Price fluctuations of Shenzhen Agricultural Power Group exceed expectations; extreme weather and natural disasters; uncertainty in changes in US-China trade policies and progress in negotiations; port congestion affecting trade order and efficiency; significant increase in agricultural input costs.