July 12, 2012

 

Chinese soy buyers hold off US purchases

 

 

The soy importers of China are holding off on placing new orders while US prices linger around record highs, awaiting lower prices before they are forced to return to the market to meet potential stock scarcities for the year, traders said.

 

China, the world's biggest soy buyer, is expecting imports to fall short of demand in September and October after a drought in South America late last year reduced supplies of the oilseed. China's imports account for more than 60% of globally traded oilseed volumes.

 

A drop in supplies from Brazil and Argentina, the world's second- and third-biggest exporters, means crushers have only been able to source about six million tonnes of soy for September and October. Crushers need at least 10 million tonnes during the peak consumption season.

 

China's supply deficit could also deepen late this year or early next year if the recent drought in the US cuts output again, traders said.

 

While CBOT soy prices retreated from an all-time high on Tuesday (July 10), they remain unattractive to Chinese buyers, with the market still concerned about a possible reduction in the autumn harvest following weeks of hot, dry weather across most of the US Midwest.

 

"At current (Chicago) prices, crushers have no intention to buy as the beans would give negative crushing margins," said a soy trading manager.

 

Purchases of old US crop over recent weeks had helped redress the shortfall for August and September, traders said.

 

But buyers are still waiting for prices to drop.

 

"They think prices will retreat on a possible expansion of soy acreage in South America, but this time the US drought seems serious," said another soy trader. "There could be a supply problem for six months from September to February before the new South American crop reaches the market."

 

"If the US crop is cut, there could be a global soy deficit of more than 14 million tonnes, and it is not easy to cut demand by that much, particularly in China," said the trader, adding that China may need to boost imports of canola from Canada later in the year to make up for meal shortages.

 

In the face of high Chicago prices, some crushers have been sourcing supplies from stockpiles of imported soy at Chinese ports, which were as high as 6.5 million tonnes at the end of June.

 

"In the short term, there will be no supply problem. Port inventories are still at a record high level following months of

 

large import volumes," said Wang Ping, an analyst with Dong Wu Futures.

 

Analysts also expect crushers in the north to buy more from weekly state soy reserve auctions, which Beijing is offering at more competitive prices than imports.

 

"Crushers in the north are showing more interest in buying from state reserves. They can ship the cheap soymeal to the south, and they have started doing this," said one industry analyst.

 

At its weekly state reserve auction last week, Beijing sold 154,334 tonnes of soy at an average of RMB3,956 (US$620) per tonne, up from 40,634 tonnes the week earlier.

 

Prices at the weekly auctions were lower than the RMB4,500 (US$706) per tonne offered for imported soy at the ports. Current Chicago prices would put imports of soy at more than RMB5,000 (US$784) per tonne.