China's soy futures market to rally amid consumption peak

Soy futures traded on China's Dalian Commodity Exchange (DCE) are seen on an upward trend due to the approaching peak consumption season as well as a boost from external markets, said an analyst with Great Wall Futures.

In the crop year of 2008-2009 as of August 13, the US, a major global soy exporter, had sold 36.06 million tonnes of soy, an on-year increase of 31.48 million tonnes.

Meanwhile, China is actively procuring soy, having so far bought 19.8 million tonnes of soy from the US in 2008-2009, compared with 13.7 million tonnes a year earlier. Its orders for US soy in the next crop year have recently been rising steadily too.

The US soy inventories are estimated to fall to three million tonnes in 2008-2009, the lowest level in 32 years, and the country's soy exports are projected to reach 28.5 million tonnes in the following six months, up 23.79 percent compared to the same period last year.

In the medium term, the strong demand for soy will push up prices on the Chicago Board of Trade (CBOT), the world's largest futures and options exchange. Thus, soy prices on DCE, which are strongly linked to the CBOT, can also be expected to rise.

Customs data show that China's soy imports in the January-July period reached 26.48 million tonnes, which rose 27.7 percent year-on-year, with the monthly soy imports in June and July surpassing four million tonnes.

As spot prices of soymeal and soyoil in China have been rising in the second half of the year which is the traditional peak consumption season, soyoil processing companies maintained their profits at the high level of RMB100-200/tonne amid increasing operating rates.

Meanwhile, China National Grain and Oils Information Centre (CNGOIC) predicts that the country's demand for imported soy will continue to rise in the following weeks as the coming National Day and Mid-Autumn Festival holidays in October will prop up meat and poultry consumption. Hence, the demand for soymeal, a major fodder for pigs and poultry, is expected to escalate.

According to CNGOIC's forecast, China's soymeal consumption this year will increase by 3.15 percent to 29.5 million tonnes while soyoil consumption will also grow in the peak season.