As global oilseed markets languish, the spread of African Swine Fever (ASF) in China is the 'icing on a cake' of bearish market factors in 2019.
With soybeans accounting for 35 per cent of the global edible oils market, a drop in the demand for soymeal in the Chinese hog industry and therefore soybeans, as is forecast to happen as ASF spreads in China, will be material in global oilseed markets.
Before 2018, China had a 700 million head, and growing, pig herd. To support this growing population, China's soybean imports more than doubled in the decade to 2017, by which time imports had reached 94 million tonnes, and more than 60 per cent of the global soybean trade.
In 2018, China's soybean imports fell to 86 million as China's 25 per cent tariff on US soybeans diverted trade flows, and the Chinese government actively sought ways to reduce the reliance of their livestock industries on soymeal.
As we approach mid-2019, the Chinese tariff is still in place, and not looking like being removed in the near future, and the 2019 Brazilian soybean crop is forecast to reach new heights.
Meanwhile, the US is preparing to announce additional farm support so that US soybean plantings may not be curtailed as much as the prevailing market price typically would. Collectively, this means the global oilseed complex is set to continue to be burdened by a depressed soybean market.
But the burdens do not end there. Palm oil, which accounts for another 35 per cent of the global edible oils market, has its own share of bearish dynamics.
Malaysian production and stock levels remain above five-year averages, Indian palm oil imports are forecast down as their own soybean harvest prospects improve and the drawdown of Indonesian palm oil stocks is expected to slow again, after a boost when their biodiesel mandate was increased from 15 to 20 per cent late last year.
There are contributing burdens in the canola market too. After two years of above 21 million tonne canola harvests, Canada's stocks are growing.
The ban placed on key Canadian exporters from the Chinese market earlier this year has helped pushed Canada's stocks to record levels.
Forecasts now place global canola stocks increasing to record levels, and at 14 per cent above the five-year average.
It is on top of this cake of bearish factors for oilseed markets that the impact of African Swine Fever is being played out.
ASF is spreading across China with no signs of abating, so that a decline of 25 to 35 per cent in pork production is expected this year.
The volume of hog feed required is expected to drop by 30 per cent as a result of the liquidation of inventory, resulting in a further four million tonne drop in Chinese demand for imported soybeans.
A candle of hope is that harvest volumes for European rapeseed (non-GM canola) for 2019/20 are forecast to be below 20 million tonnes for the first time in seven years.
This - together with Australia's own low 2018/19 production - explains the AU$80 a tonne, and above, typical spread between GM and non-GM canola currently in the market. A glimmer of upside for Australian canola producers in an otherwise burdened global market.