April 21, 2011

 

Fight for US soy to heat up as China delays imports

 

 

China's slowdown in soy purchases will leave substantial volumes for Brazil and Argentina to compete with the new US soy harvest after September.

 

Availability of South American soy could weigh on benchmark Chicago prices, already down more than 4% this month as wheat and corn both rise.

 

China, which buys nearly 60% of the world's traded oilseed, has cancelled up to eight South American cargoes and deferred about 20 shipments, or around 1.4-1.6 million tonnes, on poor crush margins, and more shipments could be hit.

 

"Normally both the origins sell whatever they have to or at least a bulk of it within six months," said a Singapore-based oilseeds trader with an international firm that has substantial operations in China. "This year South America will be left with 3-4 million tonnes over and above what they would normally have by the time the US comes to the market. That's rare."

 

Typically Brazil and Argentina, the world's second and third largest soy exporters respectively, are nearly done with soy marketing by the time US cargoes hit the market around September, leaving little choice for importers.

 

China, which bought nearly 11 million tonnes of beans between January and March, could defer additional cargoes booked for shipment in May and June given ample supplies available in the domestic market.

 

Crush margins, which turned negative in China on a glut of imported beans in the past few months, could weaken further with Beijing's plan to sell three million tonnes from state reserves at lower-than-import prices in a bid to tame food inflation.

 

"It is considered likely that additional cancellations or postponement of shipments will be made," Hamburg-based oilseeds analysts Oil World said. "Given China's importance for global soybean trade, this issue bears the potential for additional downward pressure on soybean prices in the near term."

 

Official think tank the China National Grain and Oils Information Center (CNGOIC) estimated soy stockpiles to be as large as 6.5 million tonnes, exceeding China's monthly imports of about three million to five million tonnes.

 

"We are swimming in beans at the moment," said an executive at a Singapore-based global trading firm that has soy processing facilities in China. "Even if we stop importing today and don't take any cargoes for a month, there will still be enough beans."

 

Traders estimate that South America will have an additional 3-4 million tonnes of soy left to sell come September, the beginning of the US marketing season.

 

"The US will still be the main supplier (in October-December)," said Anne Frick, a New York-based oilseeds analyst with Prudential Bache Commodities. "However, to the extent that a lack of exports in the first half of the South American crop year causes larger than normal supplies going into the October-December period, there could be larger than normal export competition from Brazil and Argentina in the first quarter of the US crop year."

 

Sales of state reserves have prompted traders and analysts to lower estimates for China's soy imports in 2010/11 (October-December).

 

CNGOIC estimated a total of 53 million tonnes, lower than the 57 million tonnes projected by USDA.

 

China's lower imports and higher output from Latin America this year could force the USDA to raise its estimates for closing stocks at the end of the marketing year in August.