January 10, 2011

Farmers' hoarding holds China's soy prices stable

Soy prices in China's major producing areas were mostly unchanged in the week to Friday (Jan 7) amid sluggish trade, as farmers were reluctant to sell and imported soy provided ample domestic supply.

Soy prices in Harbin, in the northeastern province of Heilongjiang, were around RMB3,860 (US$582)/tonne, unchanged from a week earlier.

Prices in Xuchang, Henan province, were at RMB4,200 (US$633)/tonne, also flat.

Farmers are in no rush to sell their inventories as they expect prices to rise - the costs of keeping soy in their own warehouses are very low and soy futures prices are increasing, an analyst said.

"Farmers can earn their livelihood from multiple channels now, so they don't have to be as quick to sell as they used to be," he added.

Farmers are betting that soy prices will rise after China Grain Reserves Corp, the state company that manages China's grain reserves, begins to buy soy at a minimum price of RMB3,800 (US$573)/tonne, since the timing of the company's entry into the market will signal that official concerns about inflation have eased.

Most units of China Grain Reserves have yet to start buying because their participation in the market would push prices higher, contradicting the purpose of the reserve system, which is to ensure market supply and stabilise prices.

China Grain Reserves Corp had purchased only 1.06 million tonnes of soy for state stockpiles as of December 31, according to the Chinese Grain Network, a consultancy owned by China Grain Reserves.

The government will continue to release soy reserves in 2011 to stabilise prices, ensure supply and clear warehouses for newly-harvested soy, the consultancy said.

With soy stocks at major ports around 6.5 million tonnes, the supply of soy is also sufficient, it said.