August 6, 2012

China likely to buy soy at higher price

As a severe drought in the US will cut the size of global stocks, China will have to cash out more for its soy purchases, Joseph Glauber, chief economist of the USDA, stated Friday (Aug 3).

Front-month soy and corn on the CBOT have risen 23% and 44%, respectively, since early June when crop conditions deteriorated, and the record prices have slowed Chinese buying.

"We will see how bad the yields are next week when we put out our fist survey-based estimate, but it looks very bad," Glauber, who is on a visit to China, said.

Crop conditions have deteriorated significantly since June 1, he said. "There is no question that yields will be very low."

Market participants expect the USDA to further cut estimates on the unit yield of corn and soy in a report due Aug. 10, after it did so in July due to the worsening drought.

But Glauber said soy still have some potential for recovery, unlike corn, as mild spring and winter have advanced the corn crop's progress by three weeks than normal.

He also said China's imports of corn will rise in the long term as the country's consumption of meat and dairy products rises.

"More and more meat production is moving from backyards and small farms to larger operations, which means more rationalised feed use, and more industrialised production. We expect corn demand to increase."

China may import a record 61 million tonnes of soy and five million tonnes in the 2012-2013 marketing year, the USDA said in its July report.