June 3, 2009

China's state grains agency Sinograin is likely to release a small amount of its imported soy reserves under a rotation programme to profit from the rising soy prices, dealers said on Tuesday (June 2).

 

This year, Sinograin has rotated 500,000 tonnes of its imported soy, by selling old stocks and purchasing new supplies to replace them. It plans to release another 500,000 tonnes in the second half of the year.

 

Currently, Sinograin holds about two million tonnes of imported soy reserves which it rotates on a regular basis.

 

Meanwhile, traders said a price rise coupled with possible low supply in July and August may prompt Sinograin to release stocks from its much larger domestic soy reserves.

 

With the Chicago Board of Trade (CBOT) soy futures surging to an eight-month high on Monday (June 1) on a weak US dollar, the cost of imported soy to China in about a month's time is expected to reach more than RMB4,000/tonne (US$585.8/tonne).

 

Imported soy, mainly from the US and Brazil, were quoted 12 percent higher over the past two months to RMB3,750/tonne (US$549.2/tonne) at major Chinese ports.

 

According to traders, China's imports in May and June would average about 4.5 million tonnes per month but the recent slowdown due to poor crushing margins could lead to lower imports in July and August.

 

Sinograin, acting on behalf of the government, is still purchasing soy from farmers in the northeast under a campaign due to finish at the end of June. Beijing has agreed to buy 7.25 million tonnes in four provinces in the northeast.

 

Sinograin has procured about 4.5 million tonnes in Heilongjiang by end-April and it can buy as much as 5.5 million tonnes in the province by end-June, said Liu Zhaofu, president of Heilongjiang Longma Consult Co Ltd.

 

Liu added that the recent rise in soy prices could lead Sinograin to sell some of its reserve directly to the market instead of an earlier proposal to ask local crushers to process the beans into soyoil for storage.

 

On the other hand, the drought in Heilongjiang has dented the outlook for the country's harvest in September. Farmers in Heilongjiang have already reduced planting acreage this year by 10 percent.

 

China's weather officials said artificial seeding of rain last week had produced 7-17 mm of rainfall to parts of Heilongjiang province. However, it was insufficient to ease the drought conditions, particularly in the eastern areas.

 

Higher temperatures coupled with less rainfall are likely to continue in June in Heilongjiang, which produces 40 percent of the country's total soy output, the agricultural ministry said in a report.