August 13, 2009

China's government sold more soy grains than last week during its weekly auctions Wednesday (August 12), as higher futures prices made the auction base price attractive.

The government sold 15,000 tonnes of soy from its reserves, or 3.0 percent of the 501,500 tonnes it planned to sell, and three times the 4,900 tonnes it sold a week earlier.

The average price was RMB3,787 (US$554.09) per tonne, higher than last week's RMB3,752 (US$548.93) per tonne.

Rising futures prices, supported by flush liquidity, made it possible for the government to sell its soy at prices from the base price of RMB3,750/tonne, which is higher than prices prevailing in the market.

Cash soy prices in Heilongjiang province ranged from RMB3,400 to RMB3,640/tonne Wednesday.

"If futures prices continue to rise, the volume sold during the auctions could be higher," said Li Dongji, an analyst with Guotai Jun'an Futures Brokerage.

The benchmark May 2010 soy contract traded on Dalian Commodity Exchange settled 2 percent higher at RMB3,846/tonne Wednesday, after trading between RMB3,798-RMB3,882/tonne.

The government's base auction price could be a bottom for futures prices, while supply pressure will prevent prices from rising too much if they break through the RMB3,750/tonne, said Huang Xiao, a manager at Capital Futures.

US$1 = RMB6.83 (August 13)