Chapter 348 USDA, the Americans who don’t want to fight a price war
7 month 16 day.

Hong Kong Island, Bluestar Investments, Trading Room.

When the domestic soybean meal price was hit as low as 4300 yuan/ton, Guo Yang, Yang Cheng, Gao De, and five traders were all keeping a close eye on the crude oil and grain futures markets.

Since reaching its peak on July 7, crude oil prices have been falling in recent days.

The price currently remains at $135 per barrel, which means that the short position previously purchased by Jiahe has made a profit.

Yang Cheng made a well-informed analysis: "As concerns about the U.S. economy grow, the market expects demand to decline, oil supply tensions ease, and speculative funds flee, causing oil prices to surge and then fall sharply."

"A downward trend has also formed in soybean and soybean meal futures."

"Boss, the international market has completely reversed. It's time to increase your position again."

Guo Yang's eyes switched back and forth between the crude oil and grain markets. He thought for a while and then nodded.

Yang Cheng immediately gave instructions to the trader.

“Crude oil, soybeans, corn, wheat, and soybean meal all have short positions established according to the established plan.”

The position building strategy was agreed upon in advance, and this operation will also be a protracted battle.

Therefore, there is no rush in building a position, just do it bit by bit.

According to Guo Yang's idea, the situation will not completely deteriorate until at least the landmark event of the financial crisis occurs.

The landmark event was the bankruptcy of Lehman Brothers.

And before the big trend is formed, we must also be wary of sudden and violent price increases by large funds, and the margin must be sufficient.

For this operation, Golden Harvest prepared a total of approximately US$40 billion in funds.

At least half of it is used to prevent sudden risks. Coupled with sound risk control, it is difficult to be forced to liquidate in the opposite direction.

Building a position is a long process. With Yang Cheng watching over it, Guo Yang and Gao De did not stay for long, but returned to the office instead.

"How's Chen Yanqiu doing?"

"I'm meeting with shipping companies." Gao De said with a smile, "International shipping rates are down now. Qiu has contacted a few companies and feels there's still room for negotiation."

"Soon. As long as the global economy is weak and there is insufficient demand for commodities, shipping companies will be in trouble." Guo Yang looked at the sea level through the French window. "Notify me when you need anything."

The next day, Guo Yang and Gao De returned to the mainland.

As soon as it landed, we noticed that international crude oil prices were falling rapidly again.

Two days later, crude oil prices fell below $125 a barrel.

Subsequently, futures prices such as CBOT soybeans also began to fall rapidly.

Hedging can avoid losses caused by changes in futures prices to a certain extent.

But fluctuations in shipping costs can also result in losses.

At the beginning of the year, the price of each ton of South American soybeans shipped to China was US$147 per ton, but by late July, it was just over US$7.

Due to drastic price fluctuations, companies’ profits often turn to ashes or even lose their capital before imported soybeans even arrive at the port.

Companies that placed large orders in the past few months have suffered huge losses.

During the reporter's field investigation, some medium-sized manufacturers chose to return goods one after another, and more than 10 ships of ocean-going soybeans have defaulted.

Enterprises such as China National Grain and Oils Corporation, Huifu Grain and Oil, and Zhizhiyuan Oils and Fats also began to limit work and production, and the operating rate gradually fell below 60%.

The price of edible oil tends to stabilize.

However, at this time, the focus of Jiahe Grain and Oil Price War returned to edible oil.

Due to the weak global economy, the downward trend of soybeans and soybean meal has already formed, and there is no need for Jiahe Grain and Oil to take the lead.

But soybean oil is different.

After soybeans are processed, the finished products are mainly soybean oil and soybean meal.

The processing formula for soybeans is approximately: 100% soybeans = 18.5% soybean oil + 80% soybean meal + 1.5% loss.

There is an inverse relationship between the prices of soybean oil and soybean meal, while the changing trends of soybean meal and soybeans are basically the same.

When the price of soybean meal is high, processing plants will work at full capacity, soybean oil production will increase, and prices will fall to a certain extent.

When soybean meal is unsalable, soybean processing plants will reduce their operating rates, soybean oil production will decrease, and soybean oil prices will tend to rise.

Nowadays, soybean meal is unsalable and soybean processing plants are reluctant to start production. Soybean oil production should decrease and prices should rise.

But Jiahe Grain and Oil still maintains full production.

On the one hand, edible oil maintains its price offensive to seize the market. If you dare to raise prices, I will dare to seize market share.

On the other hand, soybean meal also follows market trends to compete for orders from feed mills.

This behavior is crazy!

It’s bad enough that edible oil is making a loss, but soybean meal is also making a huge loss. Who the hell can stand this?

7 month 20 day.

A report from Southern Metropolis Daily attracted the attention of the grain and oil industry, and it caused a huge stir!

"It's terrible! The daily loss is more than 1500 million. In less than two months, Jiahe Grain and Oil's net loss exceeded 10 billion yuan!"

According to the Southern Metropolis Daily, Jiahe Grain and Oil's grain and oil factory in Dongguan once again lost 900 yuan for every ton of domestic soybeans it processed. Based on this, it is speculated that Jiahe Grain and Oil's price war has resulted in a net loss of 10 billion yuan...

This report quickly spread within the industry, causing a huge response, with many people discussing how long Jiahe Grain and Oil could last.

However, Jiahe Grain and Oil did not respond to the losses.

Instead, it launched another attack in the feed market in Guangdong Province and reached cooperation with many feed manufacturers.

Tabloids reported that Jiahe Grain and Oil may have made concessions on soybean meal prices again.

This incident seems to be a microcosm, and the soybean meal prices in provinces and cities across the country have dropped again.

In major supermarkets, promotions and sales of Jiahe cooking oil are still ongoing. Some brands of oil have disappeared from supermarket shelves, and some manufacturers have reduced their distribution.

Only a few big brands can maintain continuous supply.

"Now what matters is the market share. No matter how much money we lose, we only care about the market share. If the market share increases, we will win."

"We are losing money, and the losses are not small. So what if we lost 10 billion? Have you reduced your salary and bonus? Or do you also want to stop working and only receive basic salary?"

"What are you afraid of? Don't be afraid! The company can afford the loss! We will open up production and distribute products boldly. If our competitors take a step back, we will take a step forward."

In the conference room of the Tianjin factory, Guo Yang gave a passionate speech.

Many middle-level and grassroots managers do not understand why the company is engaging in a price war.

Just as the outside world has rumored, why are they still producing at full capacity when they are clearly making losses?
The lack of understanding leads to all kinds of speculation and conspiracy theories, questioning the management, and all sorts of rumors of internal and external collusion to bring down the company.

Guo Yang's appearance dispelled such concerns among the middle and grassroots levels, allowing production work to proceed without worries.

After finishing the meeting with the employees of the Tianjin factory, Guo Yang lay back in the boss chair.

The work intensity has been very high these days.

After returning from Hong Kong Island, we headed north along the coast, to Guangdong Province, Fujian Province, Zhejiang Province, Jiangsu Province, Shandong Province, Tianjin…

We visited all the important processing plants and coastal saline-alkali soybean growing areas.

Even though it's a bit useless, it's quite satisfying to concentrate all your energy on dealing with things. It feels like every cell in my body is trembling.

Because the results achieved are also very gratifying.

In terms of soybean meal, Guangdong Province ranks first in the country in total compound feed production, and Shandong Province ranks second.

The other provinces are still quite far behind the top two.

But now, in Guangdong and Shandong provinces, Jiahe Grain and Oil's soybean meal trading has already taken a dominant position.

Other provinces were also taking over.

In the edible oil market, Huifu Grain and Oil, which mainly focuses on Beijing, is retreating. Its boss Shi Kerong has instead frequently appeared in real estate, and the operating rate of the pressing factories has dropped below 50%.

Zhi Zhiyuan has also become honest, and the factory's operating rate is also less than 50%...

After a careful count, only Fortune, King Dragon Fish and Luhua still have a chance to compete in the edible oil market, while the others have almost collapsed.

Oh, and Jiusan Grain and Oil is still strong in the Northeast and North China markets.

What’s interesting is that the news that Guo Yang had been preaching along the way somehow got out.

The news that Jiahe Grain and Oil has lost 10 billion yuan in two months has been confirmed, and it will continue to maintain the status quo and produce at full capacity.

The end of April.

International oil prices fell sharply to $121, driving commodities such as soybeans and corn to fall again.

The futures price of soybeans fell to 3800 yuan per ton, down 5500 yuan from a high of 1700 yuan per ton.

The price of soybean meal also fell below 4300 yuan.

This irritated the nerves of many people, especially some import traders, who watched as thousands of tons of soybeans stored in warehouses evaporated by millions of RMB.

The downward trend of soybeans has not changed.

Under such circumstances, oil refineries became even more panicked and began to suspend or limit production.

Even Guoliang and Wilmar International have reduced their external purchases.

A reporter went to interview Fang Hong, the general manager of Fortune, and asked: "Will Fortune process domestic soybeans?"

Fang Hong's face was serious.

“There is no such plan for now.”

"The market is waiting for soybean prices to fall to a reasonable level, but we must also be wary of the impact of imported soybeans on domestic soybeans."

"The soybean price has fallen below 4000 yuan, which means that the production cost line of domestic soybeans is about to be reached."

“If it goes down further, the situation will be unpredictable.”

This seemed to alert traders and soybean processors in the market.

Why do soybean processing plants tend to be built in coastal ports?
Because it is convenient to import and because imported soybeans are cheaper than domestic soybeans.

Last year, the substantial increase in domestic soybean production corresponded to speculation in bioenergy investment in the international market, which led to high soybean prices. As a result, soybean prices in some domestic producing areas were lower than imported soybeans.

This is also one of the reasons why Golden Harvest dared to launch a price war.

At the same time, it is probably because this is the reason why Jiusan Grain and Oil has remained silent after fighting a price war for so long.

Jiahe and Jiusan not only have processing plants along the coast, but also factories in soybean producing areas and have mature soybean planting bases.

However, with the decline in international soybean prices, domestic soybeans no longer have a price advantage.

What if it continues to fall?

Domestic soybean prices will be at a disadvantage.

What was the purchase and storage price of soybeans set by the government last year? 1.85 yuan per jin! That is 3700 yuan per ton.

This is the average price.

The landed duty-paid price of imported soybeans is almost approaching this level.

Even if domestic soybean yields increase, there are still high logistics and transportation costs.

Some people try to convince themselves.

The low production cost of international soybeans is the confidence of these people, so they should not lose everything...

If we really want to switch to processing domestic soybeans, the geographical advantages of building factories in coastal ports will largely disappear.

On August 8, Pengcheng Business Daily published the speech of Guo Baichun, Chairman of Zhizhiyuan.

"Zhizhiyuan is not worried about losing market share. We are even considering reducing the operating rate or even stopping production completely, because Jiahe's forced processing of domestic soybeans in Dongguan is unsustainable."

"For the sake of market share, companies can tolerate temporary losses, but what if the losses last for one or two years, or even longer?" "Jiahe Grain and Oil lost 10 billion in two months, 60 billion in one year, and 120 billion in two years."

"No company would do this. How much profit does the domestic edible oil market make in a year?"

"The geographical conditions of Guangdong Province dictate that we can only process imported soybeans."

"When the international soybean price drops to 3000 yuan per ton, or even lower, the advantage of imported soybeans will return."

"Therefore, Zhizhiyuan still has no plan to process domestic soybeans, and Jiahe Grain and Oil is destined to have only a temporary glory."

Shortly afterwards, Shi Kerong of Huifu Grain and Oil in the north gave a similar answer to media questions about work and production restrictions.

"The production limit is to wait for the right time. Huifu Grain and Oil cannot afford to lose hundreds of millions of yuan."

"Huifu has invested in railway logistics and port terminals in South America, which gives it a great advantage in foreign procurement."

"The average production cost of domestic soybeans is already high, and agricultural inputs have risen sharply this year. The competition may end in a mess. Farmers are reluctant to sell, and the state has issued a minimum purchase and storage price. Processing plants are facing huge losses..."

“The processing plants that closed down four or five years ago may very well be the final fate of Jiahe Grain and Oil.”

For a while, business owners and media were not optimistic about the future of Jiahe Grain and Oil.

However, these people did not know that Guoliang, who was the first to cause trouble, had quietly sent a team to the main soybean producing areas.

International grain traders have also remained silent.

Guo Yang has also been paying attention to market trends, especially the four major grain traders.

The operations of Bunge’s three soybean processing plants in Jinling, Rizhao and Tianjin are all under the control of Jiahe Grain and Oil.

Cargill and Louis Dreyfus, which mainly have operations in the southeast coast, and Jiahe Grain and Oil have also not relaxed their information collection.

The operating rates of these three grain traders have declined, but the decline is very limited, and they obviously do not want to give up the market.

The crudely processed soybean oil is mainly supplied to oil companies such as Fortune and Golden Dragon Fish for refining, while soybean meal is Jiahe’s main competitor in the current market.

As for ADM, we can see from the reaction of Guoliang that there are huge conflicts in trade.

The reason why he and Gaode appeared in the soybean producing area was because Guoliang wanted to steal Jiahe’s soybean planting orders.

Damn it, he said one thing in public and another behind the scenes, and almost made the national grain industry feel disgusted.

Fortunately, Jiahe has always had a strong desire to control the planting base, and the technical service personnel knew it as soon as there was contact.

Jiahe did not respond to any changes in the outside world. Even if reporters came to his door, they could not find him and Gaode who had been inspecting the countryside for a long time.

However, Jiahe ignored it, but Jiusan Grain and Oil, located in Northeast China, accepted an exclusive interview with China Business News.

Xue Liqiang acted very tough.

"Domestic soybeans are no longer a small business. Facing the possible impact of imported soybeans, at least Nongken has made preparations."

"We don't want to engage in a price war, but if it really comes to a fight, the situation will be more tragic than we can imagine."

"Jiusan Grain and Oil is very confident about this."

"Many people still stubbornly believe in the cost advantage of imported soybeans, and ignore the fact that domestic soybean yields have increased. They believe that this year's downturn will hit farmers' confidence, and that the situation will get better next year after they survive this year."

"For those colleagues in coastal areas who have restricted production and work and insisted on processing imported soybeans, I can only wish them good luck. Perhaps they will never get back the market they have lost."

"Also, did Jiahe Grain and Oil really lose 10 billion in two months?"

"I do not believe."

Jiusan’s main processing capacity is in the Northeast, backed by the main soybean producing area, with advantages in raw materials and logistics.

Against the backdrop of increased yields, the industry also knows that Jiusan should be able to compete with imported soybeans.

But what did you mean by that last sentence?
The media and critics who were discussing this hotly a while ago were all confused. Didn’t Jiahe Grain and Oil lose 10 billion?

No, didn't the chairman of Jiahe admit it himself during the meeting with the management? How could this be false?

“The lost market can never be regained?”

In Pengcheng, when Zhizhiyuan’s Guo Bochun and technical director Zuo Qing saw this, they thought of Jiahe, which was like a hungry wolf pouncing on its prey, and Cargill, which was still producing normally, and suddenly they were a little stunned.

Guo Bochun asked: "Is there no news from Louis Dreyfus yet?"

"Let's still pay attention to the USDA (U.S. Department of Agriculture) world agricultural supply and demand forecast report, but it's almost August and it hasn't been released yet..."

Having said this, Zuo Qing stopped, glanced at Guo Baichun, and had a bad feeling.

“Could it be because they don’t know how to produce the report?”

Guo Bochun pondered for a while and said, "Global demand is weak. Even if North America cuts production by more than 15% as it did last year, there will still be oversupply."

“The USDA report this time is critical…”

The losses caused by the sharp rise and fall in soybean prices in recent months have hurt Zhizhiyuan badly.

But as long as the price of imported soybeans drops below the cost line of domestic soybeans, there is still hope for a turnaround in the future.

There are many processing factories that share the same idea as Zhizhiyuan.

Just like four or five years ago, imported soybeans destroyed the domestic soybean industry with their low-price advantage.

In September, Chinese and North American soybeans will enter the harvest period simultaneously.

Therefore, if North American soybean production can be stabilized this year, it will be good news for Guo Baichun and others.

Importers and exporters around the world are eagerly waiting, however, the USDA report has not been released yet.

...

Shandong Province, Jining, Jiaxiang, this is the hinterland of southwestern Shandong.

A commercial vehicle was shuttling on the field roads among the continuous soybean fields. Guo Yang and Gao De looked through the car window at the soybeans that had been enclosed in a forest.

Historically, the Huanghuaihai region was once the center of the country's soybean industry, and the cultivated area once accounted for 40% of the country.

But currently it only accounts for about 20%.

The main reason is that farmers have been in a state of spontaneous planting for a long time, and the planting plots are also distributed on scattered and barren arable land, with poor production conditions, low management level and relatively extensive cultivation techniques.

This results in low yields, unsatisfactory benefits, and ultimately a smaller and smaller planting area.

The reason why Guoliang cannot take away Jiahe’s soybean base is closely related to this reason.

Tianhe established a high-quality seed breeding base in Jiaxiang, under the jurisdiction of Jining, several years ago.

Breeding, seed production, scientific research, cultivation models...all kinds of research are covered.

Subsequently, a large-scale soybean production base was established based on this.

Under the two-cropping system, unify the production of soybeans, corn and cotton to ensure consistency of crops on the same plot of land.

At the same time, we changed the practice of farmers keeping their own seeds to unified seed use, promoted new technologies such as narrow row and dense planting, returning straw to the fields, mechanical sowing, and no thinning, unified social services, and unified procurement, storage, and transportation.

The quality and specifications of the commercial soybeans finally produced are highly consistent. Everyone who sees such a soybean planting base will be envious.

I can only say that Guoliang has a good vision.

But Jiahe has been working here for several years and has established a benefit linkage mechanism with the farmers.

Seeds, technology, agricultural machinery services, etc. are also provided by Jiahe, and it is not easy to pry them away.

However, if the national grain department really wants to purchase domestic soybeans, it is actually not difficult because the domestic soybean planting area has increased dramatically this year.

The business car circled the soybean field several times before finally meeting An Tao, the general manager of the base, in his office.

An Tao was originally the production manager of the Jiaxiang seed production base. It was also An Tao who built the Tiandou No. 1 demonstration and promotion base of Tianhe on the saline-alkali land in Shandong Province.

Later, as the business expanded, it was difficult to find suitable people.

Guo Yang and Qu Yang discussed it and decided to promote An Tao.

"It's quite leisurely, Lao An."

An Tao, who was reading a newspaper with his legs crossed, was suddenly startled.

"Boss, when did you arrive?"

"Just arrived, drove around the fields." Guo Yang introduced, "This is Gao De of Jiahe Grain and Oil, Mr. Gao."

The two greeted each other, and then An Tao busied himself making a cup of tea for each of them.

"This year the weather has been good. Apart from applying fertilizer and preventing pests and diseases, there is basically nothing to do in the past two months. I just read the newspaper."

Gao De smiled and said, "I just went to check it out. The soybeans and corn are growing very well this year."

Compared with Gaode, Guo Yang is more direct. "Just tell me, how many kilograms of soybeans can be produced per acre?"

An Tao stretched out a palm, and after a second, he retracted his thumb.

"500? Or 400?"

An Tao smiled and said: "Good fields can yield at least 500 kilograms, and some can even yield 600 kilograms. The worse saline-alkali land and barren land can also yield more than 400 kilograms."

"Fertilizer is too expensive this year. Some farmers are reluctant to use topdressing fertilizer, otherwise the yield would be higher."

Gao De asked again: "What about the cost?"

An Tao said: "Not counting the rent, the cost per mu is about 200 yuan. With the rent, the cost per mu is about 600 yuan."

Guo Yang and Gao De felt more confident.

Calculated in this way, the production cost per ton of soybeans is between 2400 and 3000 yuan, or even lower.

Moreover, the transportation from here to the factory in Shandong Province is not far, and even if it goes north to Tianjin, the logistics cost is actually not high.

Assuming farmers can break even, the lowest cost at the factory can be controlled at 2700 to 2800 yuan per ton.

But this year, soybeans generally receive a subsidy of 30 to 50 yuan per mu, and it is enough for farmers to earn the subsidy.

The soybean bases on coastal saline-alkali lands in Jiangsu Province and other places are similar.

Even the logistics cost is lower.

Guo Yang and Gao De continued to ask An Tao for some details.

For example, in the case of switching from corn to soybeans, the soybean planting area in Shandong Province has increased dramatically this year.

Last year, the corn planting area in Shandong Province was 46.7 million mu, and the soybean planting area was more than 4 million mu.

But this year many people have switched to corn, and the soybean planting area in Shandong Province is likely to be over 10 million mu.

There are four to five million acres of land that have established cooperative relations with Jiahe. As for those that have not established cooperative relations, their competitiveness is slightly worse.

The planting area is small and scattered, the varieties are different, the cultivation level is uneven, and there is a lack of machinery...

In addition, due to mixed collection, storage and transportation during the purchasing process, the quality of raw materials is difficult to guarantee.

Therefore, even if Guoliang wants to change its procurement path, its first idea is to pry open Jiahe’s soybean planting base rather than establish its own channels.

When the inspection of the planting base in Shandong Province came to an end, Gao De asked, "Boss, are you still going to the Northeast?"

"I'm not going." Guo Yang curled his lips. "Just look at Jiu San's attitude. Old Xue, not only did he accept the interview, but he even mentioned Jiahe at the end."

"Haha, losing 10 billion yuan in less than two months is indeed a bit exaggerated..."

buzzing.

Gao De took out his cell phone, "Hey... it's Qiu's call. Maybe there's news from the shipping company."

"It shouldn't be that fast." Guo Yang said, "Take it first. Maybe there's news from the Americans."

After a while, the expression on Gao De's face became more and more surprised.

"Boss, you're right. The USDA supply and demand report is out, but it's a little weird."

"It seems that the Americans do not want to engage in a price war."

(End of this chapter)