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May 20, 2008

  

China's soymeal production may be affected by overflowing soyoil inventories

 

 

Overflowing soyoil inventories and low prices may prevent crushers from continuing their operations, leading to a short supply of soymeal in China just when it is in demand from the feed industries.

 

As it is, traders in China are hoping strikes by farmers in Argentina will delay cargoes from the South American nation and help clear overflowing inventories of vegetable oils.

 

The situation is a reversal of conditions in the first quarter, when China, worried about possible shortages, bought soyoil aggressively. Now, traders are having difficulty finding places to store those purchases.

 

The strikes could benefit Chinese traders by giving them time to clear inventory.

 

Huge inventories have caused China's domestic cash crude soyoil prices to drop 30 percent from their peaks early in March to levels.

 

Beijing, worried more about inflation ahead of the all-important Olympic Games in August than storage issues, has further exacerbated the situation by releasing about a quarter of a million tonnes of low-priced soyoil from reserves. 

 

Traders estimate that China has booked 6-7 million tonnes of soy for shipment in May and June, mostly from Argentina.

 

The traditionally weak consumption season also meant slow moving inventory, traders said.

 

Despite a pickup in soymeal demand, some crushers may have to close operations as they had no more space for oils, they said.

 

As crushers cannot make profits at current low prices of soyoil, they may have to halt crushing operations, said an executive at a crusher in northern China.

 

To meet strong demand for meal, crushing operations should have continued, but oil demand is soft, traders said.

 

Meanwhile, CBOT soy futures hit a two-month top on Friday, helped by a USDA report that China had bought about seven cargoes of US beans last week.

 

On the other hand, traders in China said there was no sign that Chinese demand for soy was strong.

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