July 24, 2012

 

China's soy prices may set fresh record to accommodate imports

 

 

To be able to contain soy imports, which data showed soaring in June, China's soy prices will "likely" set a fresh record, even as futures tumbled, Macquarie said on Monday (July 23).

 

The double whammy of drought damage to US Midwest crops, following disappointing South American harvest at the start of the year, has "set up an explosive situation" for soy prices, the bank said.

 

Soy prices, which touched records above US$17.70 a bushel last week, "will likely have to rise further" to constrain demand.

 

This includes orders from China, the world's largest buyer, which customs data on Monday (July 23) showed importing 5.6 million tonnes of the oilseed last month, the highest figure for eight months, and a rise of 31% on the figure for June last year.

 

"Any production loss that we see in the US will require prices to rise to even higher levels now in order to curtail Chinese import demand," Macquarie said.

 

"Prices will have to trade in the high teens [dollars per bushel] for the rest of the year for this to occur."

 

The bank added, "If yields fall to below 40 bushels per acre, we will have to ration a significant volume of Chinese imports through the 2012-13 season."

 

In fact, many analysts have already cut their forecasts for the US soy yield below this level, with Goldman Sachs on Monday (July 23) downgrading its estimate to 39.5 bushels per acre. The USDA estimate is at 40.5 bushels per acre.

 

However, soy, and other agriculture commodities, suffered losses on Monday (July 23), fuelled by fears for euro zone debt, and forecasts for much-needed rain in the Midwest.

 

Any reduction in Chinese imports would come against a backdrop of domestic production hopes weakened by a switch by growers from the oilseed to corn, which offers better returns. Indeed, Barclays Capital said that a third successive year of smaller soy sowings in 2012, "as farmers increase domestic corn production, bodes well for higher 2012-13 soy imports".

 

Chinese corn imports were elevated too in June, reaching a five-month high of 528,600 tonnes, quadruple those of May. However, imports of wheat, which has been favoured as a feed grain thanks to high corn prices, fell to a five-month low of 216,700 tonnes, down 61% on month, although as BarCap noted, "the decline came from record high wheat imports in May".

 

China's cotton imports, net of 5,900 in exports, also fell to a five-month low, of 470,100 tonnes, after the country wound down its programme of rebuilding state stockpiles.