April 20, 2011

 

 

China confirmed the cancellation of six to eight South American soy cargoes and the deferral of about 20 shipments as crushers make losses, partly due to Beijing's expected release of a large volume of state soy reserves at lower prices to tame food inflation.

 

Chicago Board of Trade soybeans for May came under pressure on news of China's cancellations and deferral, dropping 0.4% to US$13.39 a bushel, despite strengthening wheat and corn prices.

 

Buyers have this month cancelled six to eight soy cargoes due for shipment in June or July and deferred about 20 scheduled to load between July and September, the China National Grain and Oils Information Centre (CNGOIC), an official think-tank, said.

 

The cancellations came after traders said Beijing agreed to release three million tonnes of discounted soy reserves in return for a freeze in retail soyoil prices by the crushing plants who receive the subsidised supplies.

 

The release from state soy reserves is aimed at wrestling down food inflation, which drove China's overall inflation to a 32-month high of 5.4% in March.

 

CNGOIC said buyers may defer more cargoes if margins remain negative in the short term.

 

A large volume of deferred cargoes could delay sales of the new soy harvest in the US, the world's largest soy exporter, traders said. Twenty soy cargoes would amount to 1.1-1.2 million tonnes, about 20-35% of China's monthly imports.

 

New purchases of South American soy crop for the current year have almost stopped, although Chinese crushing plants have not fully covered their import needs for July and August, when margins are expected to improve, said one trading executive.

 

"The government auction will undermine the import market. We think US soy shipments could be pushed back by a month or more, with shipments starting in November (instead of the usual October)," said an industry official.

 

Chinese buyers normally switch from Brazilian and Argentine soy to US supplies around October. China is the top importer, accounting for more than 60% of the world soy trade.

 

Poor crushing margins have also pushed up stockpiles of imported soy, which CNGOIC estimated to be as large as 6.5 million tonnes, exceeding China's one-month imports of about 3-5 million tonnes.

 

Meanwhile, Beijing has agreed to sell three million tonnes of domestic soy reserves to five or six crushers at RMB3,500 yuan (US$536) per tonne. Crushers in coastal areas would be looking at a price of RMB3,800 (US$582) per tonne, including transport and other fees, compared with RMB4,300 (US$659) quoted for Brazilian soy, traders said.

 

The government is also eager to get rid of the old soy stocks, built from China's 2008 harvest, before the quality deteriorates.

 

Sales of the state reserves have prompted traders and analysts to lower estimates for the country's soy imports in 2010/11 (Oct/Sept).

 

The CNGOIC estimated China's soy imports in 2010-11 would total 53 million tonnes, lower than the 57 million tonnes projected by the USDA.

 

Crushing margins could turn positive from June as pig feed demand rises, a trading executive said.

 

China's animal feed production has not picked up due to slow restocking after the Lunar New Year in February. Traders also attributed low restocking to frequent disease outbreaks.

 

Extending its fight against excessive liquidity and stubbornly high inflation, China raised banks' required reserves on Sunday (Apr 17) for the fourth time this year.

 

The credit tightening has pressured Dalian soyoil and soymeal prices, which have failed to reflect gains in CBOT soy prices that are up more than 8% since the start of December last year.