Futures lift soybean meal spot prices despite high inventories and weak downstream acceptance

In terms of regional performance, the spot price of soybean meal in Guangxi was quoted at Yuan 3,190/tonne, with a basis against the M2701 contract of Yuan -169/tonne. The current negative basis structure persists, with no clear signs of mean reversion.

On the one hand, near-month spot prices have been constrained by high inventory pressure and have failed to keep pace with futures gains; on the other hand, market expectations for forward prices are relatively optimistic, leading to stronger futures performance. Until a turning point in spot inventory emerges, the basis is likely to remain weak in the short term.

The current South China soybean meal market presents a "high supply pressure, cautious demand, firm prices" stalemate. Despite ample imported soybean arrivals, high crush plant inventories, and aggressive delivery reminders, soybean meal spot prices have moved higher along with the futures market, while negative basis levels have shown no signs of recovery, given limited pressure on traders and poor crush margins.

Downstream feed mills maintain sufficient inventory, and high prices have dampened their purchasing willingness, with the market awaiting a price correction. In the short term, the strong performance of DCE soymeal futures and crush plants' price-supporting sentiment will provide support, limiting downside room for spot prices.

As of August 28, soybean inventories in the Guangxi market reached 1.264 million tonnes, up 0.1% month-on-month and surging 112.1% year-on-year. The Guangdong region also maintained ample soybean arrivals. Supported by abundant raw material supply, crush plants in the Guangxi and Guangdong regions have kept operating rates at high levels, with soymeal output continuing to grow and plant inventories steadily rising. Under high inventory pressure, plants have been aggressive in prompting deliveries.

However, unlike previous years, contracts this year are largely concentrated at the feed mill level, while traders hold relatively limited stocks, so delivery reminders have not triggered price-cutting sell-offs. Traders' price-supporting sentiment is more stable than in previous years. This structural change has partially blocked the transmission of supply pressure to spot prices.

Downstream feed mills currently maintain soymeal inventories of around 40-50 days, a relatively high level. Against the backdrop of soybean meal spot prices continuing to rise in tandem with the futures market, feed mills have turned cautious in procurement, mostly replenishing on a rolling basis while waiting for a clear price pullback before increasing purchases.

This "high inventory + wait-and-see" strategy reflects low recognition of current price levels among downstream participants and implies that demand-side support for further price increases is limited in the short term. Nevertheless, given the rigid nature of feed demand, should prices see a meaningful correction, buying on dips would provide strong support at the bottom.

While the current domestic soybean meal market is characterized by a mix of bullish and bearish factors, the bullish factors hold a slight edge.

On the bullish side, crush plants show strong willingness to support prices, as modest margins discourage price cuts while incentivizing profit protection. This is reinforced by firm cost-side support from persistently high imported soybean prices, which continue to underpin soybean meal valuations.

On the macro and sentiment front, the outlook receives further support from weather uncertainties, elevated geopolitical risks that boost risk premiums, rising crude oil prices that lift the complex via cost and sentiment channels, and expectations of constructive outcomes from the September China-U.S. meeting.

On the bearish side, persistently high inventories of both soybeans and soybean meal, currently at historical peaks, are unlikely to be absorbed swiftly in the near term. Meanwhile, downstream purchasing sentiment remains weak, as feed mills, already well-stocked, show clear resistance to elevated prices.

In summary, under the strong performance of DCE soybean meal futures, South China soybean meal spot prices are expected to find support. Spot prices may see modest corrections, but downside room is expected to be limited, constrained by crush plant price support, cost-side backing, and broadly positive macro sentiment.

Key factors to monitor going forward include the timing of a turnaround in soybean and soymeal inventories, shifts in downstream replenishment rhythms, and the direction of macro-level developments, notably, how progress in China-U.S. meetings influences market sentiment.