China's soy glut to hurt crushing margins

China's soy buying spree may be short lived as high imports in May and June will cause a glut in the market and hurt crushing margins.

 

China has booked up to six million tonnes for June shipment, the highest purchases ever, prompted by availability of cheaper cargoes from South America. But it will take a while to soak up such huge quantities, resulting in lower imports in subsequent months.

 

A slowdown in buying by China, which accounts for more than half of soy traded across the world, could pressure benchmark Chicago prices, especially if it comes at the beginning of the US new-crop season in September.

 

"There is definitely pressure on soymeal from such large soy imports," said Wang Chenxi, an analyst with Nanhua Futures in Beijing. "We expect soy imports from August and September to fall significantly."

 

Soy crushing margins in China, which is key to demand for imported cargoes, touched a high of RMB400 (US$60) a tonne in the first quarter of this year when processors were booking May-June shipments.

 

Traders expect these margins to shrink or even turn negative when an estimated 12 million tonnes of beans hit China's shores in the next two months and prices of soy products tank.

 

"It is a tsunami of soy coming, I think China has really overdone it this time," said a trading manager with an international trading company in Singapore that runs processing facilities in China. "No way they can take so much beans in one go, I think after June they will reduce booking new cargoes."

 

In the first quarter of this year, China bought 11.04 million tonnes of soy, a gain of 8.7% from a year ago and on top of historic high shipments of 42.6 million tonnes in 2009.

 

China's soymeal and soyoil prices in the domestic physical market have already started showing a downward trend.

 

"It is going to be stocks piling up at the ports and then meal and oil basis will receive a setback because the supply will be so huge," said one Beijing-based soy importer.

 

Traders and analysts estimate China's soy imports from August will fall about 30-40% to some 3.5-4 million tonnes, still big enough to take the nation's annual purchases in 2009/2010 to a record 46 million tonnes.