March 3, 2008

 

Droughts and lower profits impact China's soy production in 07/08 

 

 

The smaller than normal production in MY07/08 was mainly because of the planted area decline in Heilongjiang and Inner Mongolia provinces as farmers reacted to disappointing returns versus competing crops, according to a USDA attache report posted Friday (February 29, 2008).

 

Serious drought in northeast China also affected the crops. According to China's National Grain and Oils Information Center (CNGOIC), soy planted area fell to an estimated 8.5 MHa in MY07/08 from the 9.1 MHa in the previous year.

 

The MY07/08 average yield in Heilongjiang fell below 1.5 tonnes /Ha from the normal yield of 1.7 tonnes/Ha.

 

The wholesale price for soy remained lower, ranging from RMB 2,400/MT to RMB 3,000/MT from the beginning of 2006 through the soy sowing months of 2007.

 

Only after soy sowing did prices rise, thus the impact of increased planting was not felt.

 

Soy production for MY08/09 is forecast to increase to 16 million tonnes from the previous year's estimated 14 million tonnes .

 

Total soy planted area in MY08/09 is forecast at 9.3 MHa, up seven percent from the estimated 8.7 MHa in MY07/08.

 

 

Low profits
 

Soy production was also hit by low profits last year.

 

Corn prices remained high in the first quarter of 2007: wholesale price for corn in Jilin province from December 2006 to May 2007 increased by more than 22 percent as compared to the beginning of 2006.

 

In 2007, China's National Development and Reform Commission (NDRC) reported that the profit received from corn and rice by farmers in Heilongjiang stood at US$358/Ha and US$610/Ha, respectively in 2006.

 

Meanwhile, the profit from soy was only US$92/Ha. Thus, many farmers abandoned soy and shifted to more profitable corn and rice in 2007.

 

A large crusher in Heilongjiang province reported about 11 percent less soy purchased as of the end of January 2008 as compared with the previous year.

 

Soy prices began to increase in mid-2007 in response to the global price surge for grain and oilseeds. At the end of 2007, CNGOIC reported that wholesale prices for soy, soy meal and oil soared by 62, 70 and 45 percent, respectively from January 2007.

 

For corn, the price rise was less than nine percent.

 

Based on National Statistics Bureau's (NSB) Heilongjiang Rural Survey report, rice was still the most profitable crop in 2007 at US$744/Ha.

 

In Heilongjiang, profit was US$470/Ha and US$413/Ha for soy and corn, respectively.

 

The report noted that this was based on a lower than normal soy yield as a result of drought recorded in 2007.

 

An average yield would have produced US$540/Hectare for soy.

 

Current price trends and government subsidies are very likely to boost soy area, the report said. 

 

Soy yield for MY08/09 is likely to return to an average level.

 

Relatively low yield and small-scale plantings continue to be a challenge for soy farmers' competitiveness. China's average soy yields ranged from 1.65 to 1.8 MT/Ha from 2003 to 2007, as compared with an average of 2.7 MT/Ha in the US.

 

Currently, rising prices are making farmers hold out in expectation of even higher prices.

 

Industry sources reported that as of the end of January, in Heilongjiang province farmers still held from 20 to 30 percent of production.

 

The soy marketing pace of the MY07/08 domestic crop remained faster than normal because of the relatively high farm-gate price after harvest.