August 31, 2012

 

 

China's crushers are compelled into receiving costly US soy cargoes, due to fears of declining US soy supplies.

 

They are also relying on rising domestic soy prices to boost profitability in the coming months

 

US soy sales to China, the world's largest buyer of the oilseed, have risen since hitting a nine-month low in early August. Strong Chinese demand could drive soy prices, already at record highs due to a severe drought, even higher.

 

"China has booked about 11 million tonnes of US soy for 2012/2013, there will be still six-seven million tonnes of shortage that needs to be filled. If Chinese crushers want more, they will have to pay high prices," said one soy trader.

 

Based on its survey, the China National Grain and Oils Information Centre (CNGOIC) estimated that the country's soy total imports in September and October would reach only six million tonnes, below monthly crushing volume at between 4.5-5 million tonnes.

 

China's enthusiasm to scoop up high-priced US supplies has been fuelled by hopes that domestic soy prices, which struck record highs this week, would march higher amid an estimated shortage of soy in the fourth quarter.

 

"Although new US crops are giving negative margins, soy supplies would be in deficit in two months time ... so that could boost meal prices," said another industry analyst.

 

Crushers margins are about CNY704 ($110) per tonne, up nearly 20% from last week, as soy plants process beans bought some months ago. However, current Chicago prices would erode the margins.

 

China's import appetite for the oilseed will hinge on policies from Beijing.

 

High US soy prices have already pushed the most-traded soy contract on the Dalian Futures Exchange to a record high this week, prompting China's planning body to summon top crushers on August 30.

 

Industry sources who attended the meeting said the National Development and Reform Commission (NDRC) voiced concerns about rising meal prices pushing up the price of pork.

 

The NDRC has intervened on edible oil prices in the past but traders do not expect the commission to intervene, for now.

 

"Any price intervention by the government would force crushers to shut down operation, the result of this will be the spike of soy prices," said one crusher whose company was at the meeting.

 

Instead, to prevent rising food prices, traders expect Beijing to release another two million tonnes of soy from its reserves via auctions and sell its rapeseed oil stocks before the high demand season in early October.

 

"The state sales would cap soyoil price rises, but not the price of meal because you cannot substitute meal," said another trader.

 

Although Chinese buyers have stepped up imports of Canadian canola, with imports this year seen at a record or more than three million tonnes, but the supply is still small compared with soy, of which China needs more than 50 million tonnes a year.