Strong U.S. soybeans buoy domestic soybean meal over high inventories

The current trajectory of the soybean meal market is essentially a sustained contest between cost-side drivers and domestic fundamental headwinds.

The strength of Chicago Board of Trade (CBOT) soybeans serves as the primary engine lifting domestic soybean meal price floors.

Although the August USDA report lowered the U.S. soybean yield to 52.7 bushels per acre, the Pro Farmer crop tour estimated a higher yield of 53.3 bushels per acre. Market expectations remain divided on the direction of the yield revision in the September USDA report. This uncertainty itself is likely to underpin prices ahead of the report's release.

Meanwhile, sustained Chinese purchases of U.S. soybeans have significantly bolstered U.S. soybean export expectations. Should the September USDA report further raise its export estimates, the supply-demand balance sheet could tighten, potentially opening additional upside for CBOT soybean prices.

Lastly, a strong El Niño event is projected to persist until the spring of 2027. While its eventual impact on South American soybean production during the growing season remains to be seen, it injects a sustained weather risk premium into far-month futures contracts.

Overall, the CBOT soybean front-month contract is expected to trade in a firm range of 1200-1350 US cents per bushel, establishing a relatively solid floor for domestic soybean meal import costs.

In stark contrast to the strong U.S. soybean outlook, domestic soybean meal spot markets are grappling with tangible supply-side pressures.

As of the end of August, domestic crushers' soybean inventories climbed to 8.28 million tonnes, up nearly 18.82% year-on-year. Soybean meal stocks increased to 1.16 million tonnes, rising 8.20% from a year earlier. While the pace of accumulation has slowed, rapid destocking remains elusive. Although September soybean arrivals are projected to decline month-on-month, port inventories have remained elevated compared to historical averages.

On the demand end, the persistent losses in the hog farming sector have curbed feed mills' initiative to build inventories, with purchases remaining largely need-based. Aquatic feed consumption is also tapering off as the season winds down, contributing to weaker marginal demand. Although poultry feed demand offers some baseline support, it is insufficient to absorb the high inventory overhang.

Whether this peak season becomes a turning point depends on the evolution of the following variables.

The September USDA supply-demand report, due in mid-month, looms as the market's definitive inflection point. Should the report validate a bumper U.S. crop via an upward yield revision or confirmation of ample supply, CBOT soybeans could witness a classic "sell-the-fact" pullback, dragging domestic DCE soybean meal futures lower and potentially establishing a near-term peak. Conversely, a downside surprise in yield estimates would rekindle weather-risk positioning, likely propelling prices higher and challenging key resistance levels.

While September soybean arrivals in China are set to decrease month-on-month, elevated port inventories and sustained high crushing rates imply that soybean meal stocks will struggle to draw down quickly in the near term. A genuine inflection point in inventories may not materialize until after October. Thus, during the "Golden September and Silver October" traditional seasonal high, the domestic spot side is likely to play more of a "drag" than a "driver" role, capping upside price potential.

In the fourth quarter and before pre-Chinese New Year restocking, concentrated feeding for livestock and poultry could drive a month-on-month recovery in feed demand. However, whether this expectation is priced in ahead of time during September–October hinges on improvements in hog-farming profitability and market confidence in longer-term demand. Should final demand remain persistently weak, the weight of high inventories will become even more pronounced.

In sum, the fundamental conditions for a sustained trend reversal in the soybean meal market during the September–October peak season remain incomplete. The market is likely to persist in a "firm external, soft domestic" dynamic, characterized by wide two-way volatility. The front-month contract is projected to trade within a Yuan 3,250–3,500/tonne range, tracking CBOT soybeans in a "rally-then-pullback" rhythm.

Key triggers to watch are the mid-September USDA report, U.S. weather developments, and China's buying pace. While pre-report sentiment leans bullish, aggressive chasing is unwarranted; the greater risk lies in a potential "sell-the-fact" correction once the report lands.