January 25, 2012

China's soy purchases drop 4% on-year

China's 2011 soy purchases has amounted to 52.64 million tonnes, down 4% against last year, falling for the first time in seven years. 

Malaysian palm oil output falls but stocks kept ample with higher imports

The lower amount of imports stems from a release of government stocks through the year in an attempt to cool domestic food price inflation.

Reports suggest that 2.6 million tonnes of stocks were released at discounted prices; the government is suggested to still hold five million tonnes of strategic reserves.

However, with crush capacity through 2011 suggested to increase by 12.5 million tonnes to 125 million tonnes, the government's stocks-to-capacity ratio could fall to 4% in 2012 from 6.5% in 2011. The lower level of stocks may potentially encourage a higher level of imports through 2012 in order to replenish stocks if crush capacity - and hence potential demand - increases. The potential for increased demand being met with less than certain supply levels from South America and the US may increase volatility in the soy market.

The palm oil market has been moving through the seasonal supply lull of November through February. Latest data from the Malaysian Palm Oil Board suggests that output in December fell to 1.49 million tonnes from 1.63 million tonnes in November. As such, exports reduced to 1.59 million tonnes from 1.66 million tonnes in November. However, due to an increase of 40kt of imported palm oil to 126kt through December, stock reduction was curbed. Stocks in December reduced slightly to 2.39 million tonnes from 2.07 million tonnes in November. This stock level was above the expected level of 1.95 million tonnes and is well above stocks held in December 2010 of 1.61 million tonnes.

Therefore despite the interrupted output being reduced and supporting prices, any gains have been limited by the larger stock level. The seasonal supply lull may last until February depending on the strength of the monsoon season which is being accentuated by a La Nina weather formation.