Can high crush margins sustain amid falling soybean meal basis?

While Dalian Commodity Exchange M05 soybean meal price has continued to strengthen, spot prices lacked momentum, resulting in widening basis on the market. Behind this seemingly contradictory phenomenon lies a clear industrial logic, that is, against the backdrop of ample imported soybean supply and cautious market sentiment, crushers have proactively lowered forward-month basis, leveraging high crushing margins to stimulate trading volume and propel the market into a new phase of competition.

I. Crushers Lower Prices to Lock in Forward-Month Sales, Accelerating Basis Sales Pace  

According to Mysteel's tracking, the domestic crusher soybean meal trading volume surged significantly on January 28, with the daily total reaching 740,700 tonnes, an increase of over 600,000 tonnes from the previous day. Among these, spot transactions accounted for only 77,700 tonnes, a small portion of the total. The market was predominantly driven by forward-month basis transactions, which amounted to 663,000 tonnes, constituting nearly 90% of the day's total trading volume.

In terms of specific transaction structures, the Aug-Sep delivery traded at Yuan -40 to +30 basis (against M2609) dominated, with a combined transaction volume of 454,000 tonnes. Additionally, 50,000 tonnes were traded for Shandong's May-Sep delivery time at Yuan -90/tonne (against M2609), 90 thousand tonnes for East China's May-Sep Yuan -100/tonne (against M2609), and some companies offered flat price sales for May-Sep at Yuan 2,780/tonne.

This trading activity was primarily led by large state-owned enterprises releasing forward-month basis contracts, with major downstream feed groups serving as the main buyers. This also marks the second significant basis trading volume this month, following the earlier transaction of over 1 million tonnes for May-Jul delivery at Yuan -30/tonne (against M2609) on January 12.

From a longer-term perspective, crushers have been accelerating their basis sales pace for both May-Jul and Aug-Sep periods. Statistics indicate that the average monthly forward sales for May-Jul basis have reached 2.2 million tonnes, while for Aug-Sep, the monthly average has increased to approximately 700,000 tonnes.

II. Strategic Game Between High Crusher Margins and Basis Decline  

The market has long counted on the support for soybean meal spot prices from high procurement costs for Jan-Mar soybeans. However, under the expectation of a bumper Brazilian harvest, the cost of imported soybeans for shipments after February has significantly declined.

Although crushers have moderately lowered forward-month contract prices, crushing margins have remained relatively high. Based on shipping schedules and domestic customs clearance timelines, domestic May-Sep basis corresponds to soybean shipments from Mar-Jul.

Taking the lowest flat price of Yuan 2,780 /tonne on January 28 as an example, crushers' spot crushing margins still range between Yuan 120–260/tonne (excluding port handling and processing fees). From a crushing margin perspective, the May-Sep basis at Yuan -90/100/tonne (against M2609) or flat price of Yuan 2,780/tonne offers high safety margins and cost-effectiveness only for the Aug-Sep period, while the May-Jul period is less advantageous compared to the earlier standalone Yuan -30 (against M2605) basis transactions, with pricing typically completed below Yuan 2,750/tonne.

Notably, monthly soybean arrivals for May-Sep are expected to exceed 10 million tonnes. Crushers' proactive reduction in forward-month basis contracts reflects their clear expectation of ample future soybean arrivals. By lowering basis level to stimulate trading, they aim to lock in profits early and avoid future sales pressure.

Meanwhile, with strong sales progress and high crushing margins, there is potential for overbuying or overselling. Excess soybean procurement shipments may lead to postponed crushing schedules, introducing potential downside risks to basis differentials.

III. Basis Procurement Enters a Rational Phase: Cost-Effectiveness Becomes Key for Feed Companies' Position Allocation  

Whether for the actively traded Aug-Sep basis contracts in the current market or the previously heavily traded May-Jul contracts, the procurement logic for some downstream feed companies is largely based on the valuation judgment that soybean meal forward prices are at relatively low levels.

The aim is to establish forward-month position bottom layers to lock in future production costs, thereby providing a safety margin for their operations, rather than driven by demand expansion expectations. In this process, trader participation has been relatively limited, with the trading scale of Aug-Sep contracts notably lower than that of the earlier May-Jul basis contracts.  

From a price structure perspective, the soybean meal spot market in 2025 saw flat prices as low as Yuan 2,750/tonne and basis as low as Yuan -200/tonne. In comparison, the current basis quotes for Aug-Sep Yuan -30/tonne (against M2609) or May-Sep Yuan -100/tonne (against M2609) do not offer particularly high safety margins.

In contrast, the earlier May-Jul Yuan -30/tonne (against M2605) basis transactions, once priced, resulted in actual costs concentrated in the range of Yuan 2,700–2,750/tonne. With the recent continuous rebound of the DCE M05 soybean meal contract from low levels, if prices stabilize above Yuan 2,800/tonne, companies could achieve profit margins of Yuan 20–70 /tonne through basis washing operations.

Concurrently, the current May-Sep price spread fluctuates between Yuan -100 and -90/tonne. If this basis widens further to Yuan -150/tonne or even Yuan -200/tonne (against M2609) through rollover operations, it would provide a significant safety buffer for companies holding basis contracts. This explains why some feed companies have allocated 50% or more of their positions to May-Jul contracts.

In comparison, current basis procurement for May-Sep at Yuan-100/tonne or Aug-Sep at Yuan -30/tonne (against M2609) should remain cautious, as the market awaits more attractive price structures or clearer signals of safety margins.

IV. Conclusion  

Looking at the basis trading trends across various phases from January to September 2026, the market exhibits clear structural differentiation. Near-month Jan-Mar basis remain volatile at high levels due to strong crusher sales progress, with some companies having completed forward sales.

However, as post-Chinese New Year supply concerns gradually ease, market focus has shifted to the shipping schedules of U.S. and Brazilian soybeans.

If February shipments remain sluggish, temporary supply tightness may postpone to March–April. Conversely, if port clearance issue occur again,it will lean more towards to Brazil soybean.Plus potential rotation of U.S. soybean reserves could also replenish the soybean supply.Once supply security is established, the pace of basis adjustments may accelerate. The significant gap between Jan-Mar and May-Jul basis levels has led to low willingness to take on April basis contracts, with a strong wait-and-see sentiment prevailing. Meanwhile, forward Aug-Sep basis contracts currently lack sufficient safety margins under the existing price structure. A cautious procurement strategy is recommended, awaiting clearer value signals to emerge.