June 29, 2011

 

 

Soy prices in China are likely to rise around August in the light of the US soy market, expectation for declining domestic output, and expiration of price capping policy, experts said.

 

However, as soy inventory at ports stand at the high level of about seven million tonnes and the government may also sell reserves to regulate the market, soy prices may slip back in the fourth quarter, the usual marketing season for new soy.

 

The June to August period is a key period for soy crops growth in the US. Weather conditions will play an important part in affecting the soy output of the US, the biggest soy producer in the world, and soy prices usually tend to rise in that period.

 

The June supply/demand report released by the USDA shows that the soy planting area in the US is estimated to reach 76.6 million ha in crop year of 2011-12, lower than the 77.4 million ha in the preceding crop year.

 

The report also raised its estimate of US soy stocks by the end of 2010-11 crop year, as well as its exports.

 

Analysts say that the report is negative to soy prices to some extent. Weather and soy demand from China will become two major factors to affect soy prices on the Chicago Board of Trade (CBOT) in the third quarter.

 

Meanwhile, soy planting area in northeast China's Heilongjiang province, the country's largest soy production base, has dropped significantly from previous years, as farmers replanted paddy rice and corn for higher profits. The expected decline in soy output this year may lend support to prices when new soy come onto the market around October of this year.

 

Some media reports said that China would extend the price caps on edible oil to August 15 to stabilise prices ahead of the holiday consumption peak during the Mid-Autumn Festival (September 10-12).

 

To combat inflation, the Chinese government introduced price controls on edible oil in November of last year and extended them in April, informally requiring major grain processing enterprises, including Wilmar International, COFCO, and Chinatex to limit price rises.

 

If the price caps expire in the middle of August, cooking oil prices are expected to rebound then, which may also drive up soy prices.

 

The state-backed think-tank the China National Grain and Oils Information Centre (CNGOIC) predicted that the country's soy imports would reach 53 million tonnes in the crop year 2010-11 that began from October, compared with 50.3 million tonnes in the 2009-10 crop year.

 

China has launched 13 batches of state soy reserves put under the hammer since December of last year. However, due to unappealing floor prices, only 11,100 tonnes of about 3.86 million tonnes of reserve soy were sold at these auctions.

 

The failures not only reflect lacklustre demand on the spot market but also the government's determination to stabilise prices as it held the floor prices unchanged at these auctions.