June 8, 2004

 

China Soybean Stocks May Hit Record as Cash Runs Dry

 

Soybean stocks at China's ports may reach a record this month as domestic crushers run short of cash to pay for their orders because of tighter rules on bank lending, interrupting trade that ballooned last year to $4.6 billion.

 

Port soybean stocks may rise to 3 million metric tons this month, from 2.5 million now, state research agency China National Grain & Oils Information Center said in a report. China's buyers face legal action from suppliers after government efforts to reign in lending, part of a bid to slow the economy, left them unable to pay, the State Grain Administration affiliate said.

 

"A lot of crushers are suffering losses right now,'' said Li Hua, soybean trading manager for China Grains & Oils Group Co. in Beijing, whose crushing plants can process 900,000 tons of soybeans a year. "We are feeling the loss, but we're managing not to default on our orders.''

 

Soybean prices in Chicago have fallen 23 percent from a near 15-year high in March on concern about falling demand from China for the oilseed, which is crushed into feed for animals and cooking oil. In April, Chinese regulators told banks to curb lending just as many soybean processors increased their reliance on loans to pay record high prices for imported soybeans.

 

When crushers tried to pass on higher costs to pay for soybeans they had ordered from overseas, customers balked.

 

"Feed producers used products other than soy, such as rapeseed,'' said Larry Li, oilseed trading at Beijing Xinlong Harvest Trade Co. "Soy content in feed suddenly fell to about 5 percent from about 15 percent.''

 

Brazilian Beans

 

The inventory buildup comes as China all but blocks soybean imports from Brazil, the country's second-largest supplier behind the U.S., after shipments were turned back because of contamination.

 

China may be enforcing sanitary regulations more stringently to shield some domestic soybean buyers, weekly commodities publication The Public Ledger reported earlier, citing traders and analysts it didn't identify.

 

At least three ships, carrying about 150,000 metric tons of soybeans, have been turned back, prompting China's quality inspection bureau to block further Brazilian soy shipments from Archer Daniels Midland Co., Bunge Ltd., Cargill Inc., Louis Dreyfus and other trading companies.

 

Capacity, Prices

 

Processors in China, the biggest soybean importer, have the capacity to crush 27.4 million tons of the oilseed in 2004, up from 26.4 million tons last year. Capacity rose 5.6 million tons between 2002 and last year, helping to boost 2003 soybean imports by 83 percent to 20.7 million tons.

 

Soybeans for September delivery on the Dalian Commodity Exchange have fallen 9.3 percent over the past month to 3,354 yuan ($405) a ton. Soymeal prices, meantime, fell by 17 percent to 2,678 yuan.

Soybean futures fell to a four-month low in Chicago last week on concern that China is reducing purchases. Soybeans for July delivery on the Chicago Board of Trade fell as much as 22 cents, or 2.7 percent, to $8.16 a bushel in after hours trading. They were at $8.185 a bushel at 5:17 p.m. Beijing time.

 

The Chinese government wants banks to curb loans to industries that are expanding too rapidly and, since April, took measures such as raising reserve requirements and conducting inspections of loan portfolios to tighten liquidity. Last week, China's banking regulator urged lenders for the third time in four days to adhere to the government's policy on lending curbs.