March 8, 2010

China soy prices unlikely to fall much this year

The global and Chinese prices of soy are low at present, and are unlikely to fall much this year despite the expected record high harvest in South America soon.

The market has anticipated the large supply and soy futures have been trading accordingly, said Ning Gaoning, chairman of China's major grain trader COFCO Ltd.

China's soy consumption, including demand from both the feed meal and edible oil sectors, will be strong this year, helping to support prices, Ning said.

Soy futures traded on the Dalian Commodity Exchange have fallen almost 8% since the start of this year on concerns about the expected big harvest, with the benchmark September contract falling RMB39 (US$5.7) a tonne to settle at RMB3,822/tonne (US$560) Friday (Mar 5).

Nie Zhenbang, head of the State Administration of Grain, also told reporters that China's grain prices will continue to increase in coming months, as they "haven't reached peak levels," usually seen in April and May in the major northeastern grain-producing areas.

Answering a question about the pressure from China's major trading partners for the yuan to rise, Ning said yuan appreciation will not be a fast process, as the country still faces a lot of problems in exports and employment.

"It is impossible for the foreign exchange rate to appreciate much before China's exports recover," Ning said.

"The foreign exchange rate policy must be related to the degree of recovery in the Chinese economy and exports," he added.

China's exports fell 16% last year, so it is unlikely the exchange rate will be raised soon, Ning said.