Forget Vale’s disastrous start to the year, the real pain point for dry bulk — and one that will last years and change global trading patterns – is the horrendous impact of African swine fever in China.
The outbreak of African swine fever in the world’s most populous nation and largest soybean buyer is reducing soybean imports massively. The deadly pig disease spreading through China is likely to reshape the global soybean market for years to come.
Noel White, the boss of Tyson Foods, America’s largest meat-packing firm, said last month that in his 39 years in the business he had “never seen an event that has the potential to change global protein production and consumption patterns” as much as China’s epidemic of African swine fever.
China is the global leader in pork consumption and requires an enormous quantity of soybeans to crush into high-protein meal to feed its hog herd, the world’s largest, with the US serving as the world’s largest supplier of soybeans.
The disease broke out in August last year, with Chinese official reports ever since under playing the severe extent of the crisis.
A report released by international shipowning body BIMCO last week showed the real negative impact on the dry bulk market from the deadly swine disease, citing import data into China.
The report had some very big figures to digest for dry bulk owners.
China has 56% of the world’s pigs, according to data provider Statista. As much as a third (130m) of all Chinese pigs may be culled because of African swine fever, according to estimates by industry sources.
“From a dry bulk shipping perspective, this is a significant amount of lost soya bean tonne-miles, mainly from Brazil and the US. On the other hand, reefer containers may benefit from increased imports of pork to make up for the lost domestic production at an unchanged level of consumption,” BIMCO said in the report.
Chinese imports of soya beans have dropped by 14.4% (2.8m tonnes less) in the first quarter this year compared with the same period last year. This extends the decline, as Chinese imports already dropped by 7.1m tonnes in November-December 2018 from the previous year, BIMCO noted.
Dutch lender Rabobank forecasts the Chinese swine herd will decline between 20% and 30% in 2019 from the previous year and this drop is already manifesting in the animals’ food requirements.
A recent report by the United States Department of Agriculture (USDA) estimated China’s soybean imports are estimated to fall to 84m tons in marketing year 18/19 and 83m tonnes in 19/20, compared to 94.1m tonnes in 17/18. Meanwhile, China’s rapeseed imports from Canada are expected to fall by almost 40% during the second half of 18/19 compared to the same period in the previous year, due to reported phytosanitary concerns.
Randy Giveans, vice president of equity research at Jefferies, told Splash that the disease combined with the ongoing trade war with the US is likely to mean the global soybean trade will shrink in 2019 for the first time in over a decade.
Rahul Sharan, Drewry’s lead analyst for dry bulk shipping, has tracked declining soybean imports throughout the last 12 months.
“Towards the end of 2018, Brazilian soybean prices also declined indicating a sluggishness in demand,” Sharan observed.
“The problem is that – China has not been able to contain the spread of the disease, and worse even – it is spreading into other countries such as Vietnam. Vietnam is also a soybean importer and due to swine fever Vietnam has also started culling pigs. If it continues this way, soybean trade could further contract this year,” Sharan added.
Darin Friedrichs, senior Asia commodity analyst at financial services company INTL FCStone, has the official data, telling readers China’s soybean imports were down 4.42m tonnes to 31.75m tonnes from January to May this year.
“The average size of each shipment is probably 66k MT. This comes out to 67 less bulk shipments to China,” Friedrichs told Splash.
The swine fever situation in China will lead to a shift towards containerised imports of meat, and away from bulk imports of grain, according to Friedrichs.
“Normally China is importing grain to feed animals domestically, but swine fever has reduced the hog herd. China will be shifting to importing pork, and other proteins like beef and chicken from other countries which will mean a shift to more refrigerated containers,” Friedrichs concluded.