January 19, 2011

 

China stops US soy imports amid low crushing margins

 

 

Low crushing margins in China's well-supplied soy market following a series of state auctions had prompted merchants to cancel some US shipments to the country.

 

China is fighting a months-long inflation battle and is closely targeting food prices, which make up one third of the inflation basket.

 

Despite the rise in edible oil prices, soy crushing margins are poor, which prompted two cancellations of cargoes due for March to May shipment, the China National Grain and Oils Information Centre (CNGOIC) said.

 

Two traders confirmed the cancellations, which happened last week after US soy futures rose to new two-and-a-half-year highs on concerns over tight global supplies. Rising Chicago prices would cause losses for crushing US soy into soymeal and soyoil, the prices of which have lagged soy. Buyers have shifted to Brazilian soy supplies, they said.

 

"We do not expect many cancellations. State supplies are far too small. US soy imports in the current season are still increasing," said a manager with an international trading house.

 

News of the cancellations, only a trickle in an annual flood of soy into China, the world's top importer, came just as President Hu Jintao jetted off on a US state visit which includes a trip to Chicago and is expected to produce some fresh soy import deals for the 2011 US harvest.

 

China's vast appetite has dominated the soy market in recent years, with imports reaching a record 54.8 million in 2011. Shipments had been widely expected to slow this month and next because of plentiful supply.

 

However, China's commerce ministry said on Tuesday (Jan 18) that it had boosted its forecast for January imports from 3.35 million tonnes to 4.55 million tonnes, less than the 5.43 million tonnes that arrived in December, but still higher than 4.1 million tonnes in January 2010. January soy imports normally come from the US.

 

In a bid to cap rising prices, Beijing has been offering state soy and rapeseed oil reserves at regular weekly auctions, but its sales of soy so far have attracted no bidders as it set starting bids too high at RMB3,900 (US$592) per tonne.

 

The lack of interest prompted the government to arrange sales of soy and rapeseed oil direct to soy crushing firms in the hope the extra supply would filter into the market and help to bring down cooking oil prices.

 

It will sell about 350,000 tonnes of domestic soy reserves and 450,000 tonnes of rapeseed oil reserves at below-market prices to five crushers, compensating them for losses they may suffer in supplying the retail edible oil market.

 

But even that represented less than half the volume on offer. Industry sources said Beijing was ready to offer one million tonnes of soy from state reserves but not all the crushers were interested. Only Jiusan and Hopefull, which are located close to major producing areas, took up the offer.