By maximising its existing crushing industry capacity from its current level of below 50 percent, the agri-specialist bank believes China could ringfence regional demand, providing a significant growth opportunity for Chinese crushing businesses.
In doing so, the country would fundamentally alter the battle for global soybean supply, forcing the crushing industry in the West to either find new markets or shut down.
"Demand for soymeal from the animal protein industry has increased dramatically in Southeast Asia in recent years, and the region has emerged as an important export destination, accounting for 20% of the world's soymeal trade in 2011/12," said Rabobank analyst Pawan Kumar.
"Up to now, Southeast Asia has had few choices of its own when it comes to sourcing soymeal to meet this growing demand and has relied on imports from South America. However, soymeal exports out of China could offer an alternative—one that could provide a saving of up to 20% in freight costs."
At the last two years’ price levels, soymeal from China is uncompetitive by about US$57 per tonne compared to soymeal from the Americas. However, Rabobank believes that there are three scenarios that could change the status quo and lead to a geographical dislocation in the soymeal market.
First, Chinese processors could begin to sell soymeal at discount or breakeven prices in order to capture the Southeast Asia market, a strategy followed to capture Chinese market share and one which kept the crushing industry going during unprofitable periods. Moreover, greater crusher use might contribute positively to earnings. Under such a scenario, exports would also potentially become competitive with respect to direct shipments of US soymeal to Southeast Asia.
The second scenario suggests that China would become even stronger if its government formally allowed fiscal treatment of soymeal exports as a re-export and for VAT to be reimbursed as it is by other governments in Asia. A rough estimate suggests that this could amount to more than US$50 per tonne and provides a positive basis for Chinese exports to cater to Southeast Asian soymeal demand.
Finally, Rabobank suggests that India, which supplied 1.7m tonnes of soymeal to Southeast Asia in 2011, may reach a situation where it reduces the availability of soymeal for exports to the region. This would be as a result of the country’s growing animal protein industry and challenges in oilseed production growth.