Soybean cost support and forward supply tightness likely to sustain meal price rally

Recently, the domestic soybean meal futures market has experienced a strong rally, with the most-traded DCE soybean meal contract price breaking through previous highs and successfully standing above the Yuan 3,300/tonne mark on August 27, 2026, hitting an intraday high of Yuan 3,370/tonne and setting a new stage high. Trading sentiment in the futures market has notably recovered.

This round of gains is not driven by a single factor but rather by the convergence of multiple bullish factors both internationally and domestically, collectively lifting the valuation of forward-month contracts, driven by a synergy of factors including the return of weather premium in U.S. soybeans, rising geopolitical risk premiums, concerns over domestic forward supply, and price guidance from state reserve auctions.

Specially, the corner stone of this rally lies in the strong performance of CBOT soybeans. On one hand, U.S. soybean export demand has continued to exceed expectations, with the USDA's weekly export sales reports repeatedly showing net sales figures above market forecast ranges, particularly as purchase orders from Chinese buyers materialized one after another. The relatively low U.S. soybean prices attracted active entry and pricing by Chinese crushers and traders, with new export demand providing a solid floor under CBOT soybean futures.

On the other hand, the U.S. soybean new-crop condition ratings have been lowered for several consecutive weeks recently, as key growing areas in the U.S. Midwest experienced high temperatures and low rainfall, deteriorating soil moisture.

With the crop at the critical pod-filling and grain-filling stage, yield uncertainty has increased. The re-injection of weather premium into the market has pushed up the CBOT soybean futures price, directly raising China's imported soybean arrival costs, which is the most direct driver behind the domestic soybean meal price increase.

Beyond fundamental factors, sudden geopolitical events have injected significant risk premium into the market. Russia has recently intensified military strikes on Ukraine's Black Sea ports, once again obstructing Ukraine's grain and oilseed export routes. As a critical hub for global sunflower seed, corn, and wheat trade, the risk of transportation disruption in the Black Sea region has risen sharply.

Although this event primarily impacted grain markets, the nervousness over global food security quickly spilled over into the entire oilseed and protein complex, with international markets concerned that substitute demand for other oilseed products could increase passively, thereby pushing up global soybean and soybean meal valuations.

Domestically, the pace of imported soybean vessel purchases for the fourth quarter has continued to lag behind last year's levels, which is the core domestic factor driving the significant strength in far-month contracts. According to market tracking, domestic crushers' soybean procurement for shipments from November through February next year is notably low, with a considerable gap in forward arrival estimates.

This lag in purchasing pace stems, on one hand, from sharp fluctuations in international soybean prices earlier, which made crushers cautious about pricing, and on the other hand, from constraints due to poor near-term crushing margins.

In this case, market expectations of tighter soybean supply in the latter half of the fourth quarter and the first quarter of next year have intensified. As a result, funds have actively built long positions in far-month contracts, widening the price spread between near-month and far-month contracts. The strength in far-month contracts essentially prices in the anticipated supply-demand tightness ahead of time.

At the same time, recent state reserve auctions of imported soybeans have been notably active. From July 31 to August 26, a total of 2.174 million tonnes of imported soybeans were offered in this round of auctions, with 1.5744 million tonnes sold, for an average transaction rate of 72.42%. The transaction rate at state reserve auctions has remained consistently high, with the auction base price showing a steady upward trend, and some lots even selling at premiums.

These imported soybean auctions have become an important signal validating the bullish market logic. This phenomenon deeply reflects that both crushers and traders uniformly expect that the cost of soybean and soybean meal raw materials will rise markedly in the future. The high transaction rates and premiums at state reserve auctions not only directly raise the current spot price anchor but also send a clear "cost-push" signal to the entire market, further reinforcing bullish sentiment in the futures market, forming a positive feedback loop of "robust spot auctions – expected cost increase – strong futures buying sentiment."

During this rally, the domestic soybean meal market has exhibited a distinct structural characteristic of "strong futures, weak spot; weak near-month, strong far-month."

The futures side has surged on expectations, while the spot side has lagged due to current high domestic crusher soybean crush volumes and soybean meal inventories still above 1 million tonnes, with some coastal regions even facing storage pressure. Spot basis has continued to weaken, and near-month contracts have notably lacked follow-through strength.

This divergence precisely confirms that the core driver of this rally is not immediate spot tightness, but rather valuation adjustment based on forward supply gap expectations and cost-increase logic. For downstream feed mills, the sustained expectation of rising forward costs has already begun to affect their procurement strategies, with some considering moderately increasing purchases of forward basis contracts to lock in cost risks.

Looking ahead, In the near term, weather conditions in U.S. soybean-growing areas remain the primary variable; if precipitation forecasts for the next 1–2 weeks continue to deviate from normal levels, weather premium will persist. At the same time, the USDA's weekly export sales data and marginal changes in the Black Sea situation will also cause sentiment-driven fluctuations.

In the medium term, if fourth-quarter soybean arrivals shrink as expected, combined with the pass-through of rising state reserve auction costs to the spot market, the domestic soybean meal price center could move further upward.

However, upside potential still requires vigilance against the following constraining factors: first, whether profits in downstream hog and poultry farming can sustain improvement to support acceptance of higher-priced feed raw materials; second, the potential for demand substitution (e.g., increased use of alternative meals) at high prices to curb consumption; and third, if the pace of destocking of domestic soybean meal inventories is slower than expected, it will weigh on the extent of spot price follow-through.

Market participants are advised to closely track U.S. soybean-growing area precipitation forecasts, adjustments to yield and export estimates in the USDA monthly WASDE reports, domestic crushers' forward vessel purchasing progress, changes in the average transaction price of state reserve auctions, and shifts in downstream livestock sector procurement rhythms. Overall, as long as the core bullish logic remains intact, the soybean meal market is expected to maintain a broadly strong tonne. However, one should be mindful of technical correction risks after sharp futures price increases, as well as the potential relative weakness of near-month contracts constrained by spot inventory pressure.