May 30, 2011

Soy futures on the Dalian Commodity Exchange fell marginally Friday (May 27) amid market talk that the government plans to sell a huge amount of soy to major crushers to increase market supply and keep edible oil prices stable.

The most actively traded January soy contract fell RMB1 (US$0.15) to settle at RMB4,456 (US$687)/tonne.

The contract opened higher at RMB4,470 (US$689)/tonne and closed higher in the morning session, but nosedived in the afternoon. It traded in a very narrow range in the session due to a lack of fresh cues.

China plans to sell 2.12 million tonnes of soy from state reserves to five crushers at RMB3,300-3,500 (US$509-540)/tonne, according to market sources.

The market prices of locally-produced soy are around RMB3,800 (US$586)/tonne.

The planned sales will pressure prices "as soy supply is already sufficient," analysts said.

Soy supply has been sufficient as some crushers suspended operations following a government cap on edible oil prices in December and due to weak feedmeal demand.

Edible oil demand has been weak due to seasonal factors as consumption usually peaks during the Lunar New Year holiday in February.

Port soy inventories were up 67,000 tonnes at about 6.3 million tonnes as of Friday, the Chinese Grain Network, a Sinograin-owned consultancy, said in a research note.