At least in the first quarter of 2020, the coronavirus outbreak could severely limit China's agricultural purchase capacity due to transport restrictions across the country, said those commodity market specialists, citing trade sources.
Global financial institutions have adopted a bearish outlook for China's economy due to the epidemic.
S&P Global Ratings said it has lowered its forecast for China's 2020 GDP growth to 5% from a prior projection of 5.7% on the back of the outbreak last week. As economic growth slows, so does the consumption of agricultural commodities, including soybeans.
Beijing and Washington signed a Phase 1 trade deal on January 15 under which China committed to purchasing $36.3bn worth of US agricultural products in 2020 and $43.3bn in 2021. Since soybeans account for over 50% of the annual US agricultural exports to China, soybean purchases are a vital cog in the Phase 1 deal, according to the US Department of Agriculture (USDA).
That US agency had a similar view ion its 2020 agricultural outlook report, released yesterday.
"The current outlook for exports to China is tempered by significant uncertainties surrounding the Covid-19 outbreak, which may affect the timing of China's purchases under the Phase 1 agreement during the calendar year 2020," said the USDA.
The virus, which has already claimed over 2,100 lives in China, has forced the government to impose heavy travel and transport restrictions across the country, thereby severely restricting the flow of commodities, including soybean meal, a vital ingredient for animal feed, said the Platts analysts.
Until the ongoing quarantines and travel restrictions are lifted, the movement of workers is set to be limited, the USDA said. The production and trading of soybean meal in China could be affected, it said.
Flow of feed, supports for Chinese poultry industry
However, earlier this month, we reported on how the Chinese government had stressed the need for flow of animal feed to continue amid the virus contagion.
While containing the outbreak of the epidemic, local authorities should encourage feed plants, slaughterhouses and animal product processors to resume production as soon as possible to increase supply, the Chinese ministry of agriculture and rural affairs said in a circular issued on February 4, as per its website.
This week, the farming ministry said it has rolled out a host of measures to ensure the supply of poultry to cope with the shortage caused by the novel coronavirus outbreak in the Asian country.
The Chinese poultry industry has felt the pinch of blocked transport and closed trading market, according to Yang Zhenhai, an official with the ministry.
The country will provide special loans and lower the loan interest rate for key poultry suppliers, he said.
Channels to promote the sales of poultry should operate smoothly, while cooperation between slaughtering enterprises and farmers should be strengthened, added the official. Efforts should be made to help poultry feed factories resume work, said Yang