Equity Analysis /

Thai:Agro&Food - Tumbling soy crush margin amid a recent high of global SB price

  • USDA’s Apr report—neutral given a marginal drop in global stocks

  • Record 2022/23 US planted areas and weaker Chinese SB demand

  • New high of SB price in Apr in anticipation of the prolonged war

Bualuang Securities
25 April 2022

We remain cautious on the squeezed soy crush margin for soy crushers amid the nine-year high of global soybean (SB) price on Apr 21. With the US and Chinese soy crush margins tumbling 50% and 77%, respectively, from their recent highs in mid-Mar, we  doubt that crushers can fully pass on the incremental SB costs to customers especially after pork prices dived in some countries like China. Despite various negative factors—the record 2022/23 US planted areas and the weaker Chinese SB demand—the market ignores them and speculates purely on the prolonged Ukraine war. Our HOLD rating stands on TVO for a 6% dividend yield.

USDA’s Apr report—neutral given a marginal drop in global stocks

In its Apr 8 World Agricultural Supply and Demand Estimates report, USDA revised down 2021/22 US SB stocks by 9% MoM (by 25m to 260m bushels) to reflect higher US exports (from 2.09bn to 2.12bn bushels) which compensate for lower SB exports from Brazil, Paraguay, Ukraine and Russia. We believe that the US has benefitted from the weak SB supply outlook in South America, as the weekly US sales to China have so far shown an improvement in recent weeks. However, USDA trimmed 2021/22 global SB stocks slightly by 0.4% MoM (or by 0.4m to 89.58m tonnes) mainly to factor in lower US and Argentine SB stocks which were partly offset by bigger Brazilian stocks. For Brazil, its 2021/22 stocks were revised up by 3% (by 0.6m to 21.6m tonnes) to reflect its reduced exports and increased stock carryover outweighing its lower production and its higher domestic crush. Overall, we regard the USDA’s Apr numbers as neutral due to a slight drop in global SB stocks.