African Swine Fever (ASF) is not only impacting our livestock markets, but presents a risk to Australian oilseed and feedstuffs markets.
A significant cull to the Chinese pig herd will result in reduced demand for animal feed, of which Soybean meal makes a large proportion at around 20 per cent.
Since the turn of the century, China has become a whale in the soybean industry, they are now importing more than 55 per cent (Figure 1).
The profit margins from a crush plant are derived mainly from the oil and meal components. If meal demand drops, their crush margins will fall and demand for soybeans will be curtailed.
The current reliance on China as a customer for the global soybean crop will make it difficult to find alternate markets if there is a sharp reduction in demand.
A good indicator of the pig industry in China is the Dalian soybean meal futures contract. There has been a 42 per cent drop in values from the high in October to the present day.
This points towards a major drop in demand and corresponds with the timing of increased incidences of ASF outbreaks.
If the forecasts are realised, the demand for animal feed in China will drop drastically.
What does it mean?
This will have a flow-on effect to the soybean market and then onto the rest of the oilseed complex (canola/palm etc).
There will also be an impact on demand for other feedstuffs such as corn and barley.
In recent times, Australia has exported substantial volumes of barley into China.
