July 6, 2004

China's Soybean Buyers May Avoid Trading Companies

China's soybean processors, which face legal action from trading companies after government efforts to reign in lending left them unable to pay for supplies last month, may start buying soybeans directly from growers in the U.S. and South America instead, the government said.

Domestic crushers ran short of cash to pay for their orders last month because of tighter rules on bank lending, leading to losses at trading companies, the China National Grain & Oils Information Center said in a report. The companies were not named.

"Because a few large-scale crushers canceled soybean orders, which left overseas traders with heavy losses, trading relationships have suffered,'' the center, a State Grain Administration affiliate, said. A decline in shipments reaching ports will now mean a reduction in port inventories, prompting buyers to look for new sources of supply.

In April, Chinese regulators told banks to curb lending at a time when many processors were increasing their reliance on loans to pay for imported soybeans. The price of soybeans on the Chicago Board of Trade has fallen 38 percent from a 15-year high reached on March 22 partly because of the drop in demand from China.

Demand may rebound this month as processors restock after canceling orders they could not pay for in June.

Trading companies may raise the deposit requirements that Chinese soybean processors must pay to insulate themselves from further losses.

Officials at Bunge International Trading in Shanghai declined to comment on the plan by China's soybean processors to buy supplies directly from growers.

Soybeans for September delivery on the Dalian Commodity Exchange have risen 3.6 percent during the past month to 3,474 yuan ($419) a ton.