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Agriculture Asia US

China pork demand drives soybean crush margin

Surging Chinese demand for US pork is helping to support a big upswing in US crusher demand for beans this summer, with healthy crush spreads lifting US bean oil production sharply YoY as a side effect. Diminishing trust in the cleanliness of domestically-bred Chinese meat has contributed to a 126% rise in US pork exports since early 2013, helping US pork producers to hike output by nearly 1mn t, or close to 10%, in the first half of this year. In the US, pigs are fed a diet of ground corn and soybean meal, with each pig requiring around 450 kg of feed over 6 months to bring them up to market weight. With approximately 56 million pigs in the US, this equates to over 28mn tonnes of feed. Meal prices have gained more than 20% since the start of June, bringing up the US June crush by 19% YoY. Soybean oil prices in contrast have fallen by 10% since the start of June.

The rise in demand for US pork comes during a bad year for US poultry farmers following April’s avian flu outbreak and flock cull, which has dented demand for feed from the number one US end-user. The outbreak led to a slew of overseas import bans on US birds, including a blanket Chinese ban. But avian flu conversely may be driving higher volumes of bean oil into the hog feed supply as feed producers steer away from poultry-derived yellow grease emulsifiers towards vegetable oil to avoid any risk of cross contamination. Pig farmers do not have any restrictions on the use of meat by products such as poultry or pig fat in their animal feed, unlike the strict limitations placed on beef cattle feed in the wake of BSE epidemics.

Rising US pork production implies a growing supply of pig fat or white grease ripe for US biodiesel manufacture. Lard supplied 427mn lb, or just under 5%, of total US biodiesel feedstock in 2014, after a downturn relative to 2013. In April this year the US pork industry was on track to supply 480mn lbs of biodiesel feed at the rate seen in the first four months. EPA’s relatively generous May proposed mandate for biodiesel and advanced biofuels gives the white grease industry more room for growth as a biodiesel input.

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