March 3, 2005

China's soymeal prices surge due to bad weather in Brazil

Concern that unusually dry weather may reduce crops in Brazil led to soymeal prices in China rising as much as 4 per cent, the biggest fluctuation of any commodity market on Tuesday. The South American country is the world's second biggest grower of soybeans.

China is the world's second-largest consumer of soymeal, which is processed from soybeans and used to feed livestock. China buys mainly from the US, Brazil and Argentina to meet about half of its annual demand for the beans.

Rio Grande do Sul, Brazil's third-largest soybean-growing state, received insufficient rains over the weekend on farms already dried out from below-normal moisture since December. According to Francisco de Assis Diniz, a meteorologist for Agriculture Ministry in Brasilia, the drought is spreading to neighboring states and no increase in rainfall is expected before March 21.

"Soybean production at home is limited so we would have to look elsewhere for supplies as soyoil and soymeal demand is increasing every year,'' said Tu Weidong, a trader at Shenzhen-based China International Futures Brokerage Co., the biggest trader on the Dalian Commodity Exchange in 2004. "The weather in South America is causing US prices to go higher.''

The price of soybean meal gained a third day this week by a total of 10 per cent on the Dalian Commodity Exchange.

Soymeal futures for delivery in May rose to as much as RMB2,560 and traded at RMB2,551 on the Dalian exchange at 11:29 a.m. Beijing time.

Dalian was the biggest commodity exchange in the country last year by volume traded.

China's soymeal demand is forecast to rise 15 per cent to 21.4 million metric tons in the year ending Sept. 30 from 18.6 million tons, according to Shanghai JC Intelligence Co., a commodity consultancy, on Feb. 28. The US is the world's largest soymeal consumer.

The world's biggest movers are based on changes in price and screened for the size of the market and amount of daily trading.