August 6, 2012

Soymeal still leads China farm commodities' gains

Soymeal, which surged by more than 2%, has led the rise in agricultural commodities traded on Dalian and Zhengzhou futures bourses over the board on Tuesday (July 31), tracking the CBOT mainly supported by hot and dry weather projections.

The most actively traded January soymeal contract on the Dalian Commodity Exchange ended 2.17 % higher at RMB4,003/tonne (US$628) while the January soy contract rose 0.36 % to close at RMB4,769/tonne (US$748) and the bellwether soyoil contract dipped 0.17 % to end at RMB9,522/tonne (US$1,493).

The rally of soy products on the CBOT overnight had a bigger impact on Dalian soymeal than soy and soyoil, as domestic soymeal is mostly produced from imported soy and thus has a closer connection with international prices. However, ample soy and soyoil stocks in China coupled with slack consumption of cooking oils in summer helped check sharp rise of the two products prices.

Meanwhile, China has planned to sell 400,000 tonnes of soy from state reserves on Thursday after suspension of reserve soy trading last week and this will increase market supply and stabilise soy prices.

On the Zhengzhou Commodity Exchange, the cotton contract for January delivery ended 0.5 % higher at RMB19,000/tonne (US$2,981) on Tuesday. On the same day, the national cotton price index CCIndex 328, which indicates the average price of standard lint in China, stood at RMB18,323/tonne (US$2,874), up RMB7 (US$1.1) from the previous trading day.

Market hearsays about the government's sales of reserve cotton and issuance of cotton imports quotas have triggered fluctuation of cotton prices. Analysts suggest investors pay attention to the release of cotton policies recently when fundamentals fail to see much change and demand from textile enterprises remains depressed.

The most actively traded January sugar contract on the ZCE ended 0.35 % higher at RMB5,377/tonne (US$843).

Despite the rebound, dull sales and weakening spot prices is expected to suppress rise of Zhengzhou sugar in the following period.

Whether the soft trend can be reversed depends on recovery of downstream demand as well as the government's supportive policies, insiders note.