September 1, 2010

 

China soy imports may dwindle as costs hurt margins

 

 

China's soy imports are likely to slow from their recent record monthly pace, as costly imported beans turn crushers' margins negative and the potential for sales from state reserves looms over the market.

 

Higher prices for US beans and expensive ocean freight have raised the cost of imports, while sales from state reserves could be needed to make room for the harvest from October.

 

A slowdown from the near 17% increase in soy imports in the first half of the year would weigh on CBOT futures, given that China buys more than half of the world's traded soy.

 

Traders said besides rising outright prices - front-month CBOT soy are up 11% from June lows - soy premiums at US Gulf ports have doubled to US$1.20 a bushel above the November CBOT contract, from around US$0.50-0.60 a bushel in April, as farmers hold on to stocks.

 

Freight rates have jumped 25% to 30% since June to around US$66-68 a tonne for a panamax vessel carrying beans from US ports to China, grains traders said, lifting the cost of imported soy in China.

 

However, China is still expected to import between 4-5 million tonnes of soy a month in the last quarter of this year to feed strong consumption during the coming winter holidays, traders said.

 

China Feed Industry Association official said feedmeal demand has been improving in the third quarter compared with the first half of the year, and consumption will grow further in the last quarter due to year-end holidays.

 

The increasing wealth and urbanisation of China is fuelling consumption of higher-protein foods like meat, production of which requires still greater volumes of high-protein grains, particularly soy.

 

China's 1.3 billion people consume nearly half the world's annual pork production of around 106 million tonnes in 2009, according to the UN's Food and Agriculture Organisation.

 

Meanwhile, the government's silos are packed to capacity with around 5-6 million tonnes of soy, about 1.4 million tonnes of soyoil and more than 1.5 million tonnes of rapeseed oil, according to traders' estimates.

 

Besides state stockpiles, soy stocks at China's ports have swelled to around 5.5 million tonnes, roughly one month's import requirements, versus the usual level of around 4 million tonnes.

 

China's soy production is estimated around 15 million tonnes, up from 14.7 million tonnes last year, according to traders.

 

Analysts said that due to erratic weather that was unsuitable for corn growing, farmers in northeastern China switched to soy, resulting in revision in soy output figures from 14 million tonnes to 15 million tonnes this year.