September 3, 2012

 

China sells state soy, corn reserves to cope with possible inflation

 

 

China has raised measures to control animal feed and cooking oil prices by selling state reserves of soy and corn, warning main crushers against unnecessary market speculation for fear of inflation as economy slows.

 

The National Development and Reform Commission, China's top economic planner, met with representatives of major crushers, including Singapore-based producer, Wilmar International Ltd. (F34.SG), which operates in China as Yihai Kerry Group, and Cofco Group, to express concern about soy prices and to warn them not to speculate excessively on them, according to a trader whose company representatives attended the meeting.

 

It didn't define "excessive speculation," the trader said.

 

Wilmar and Cofco control 60%-70% of China's retail cooking oil market.

 

To increase market supply, China Grain Reserves Corp., the state stockpiler, is offering 400,000 tonnes of soy from state reserves every two weeks, as well as corn at an unspecified volume and unspecified time. In an auction Thursday, it sold all 401,419 tonnes of soy offered at an average price of CNY4,550 (US$719) a tonne, a record high for a government auction of soy reserves.

 

In August, it has sold around 800,000 tonnes of reserve soy --around 17% of the nation's monthly crushing demand.

 

The selling of state reserves followed a sharp increase in the price of imported soy, which has led to a decline in imports since early June that is expected to continue in the months ahead.

 

US soy futures hit a record high on the Chicago Board of Trade on August 30, due to strong demand and concern that supplies will remain tight through early next year, partly as a result of the worst drought to hit the US in decades. Soy for September delivery rose 0.4% to close at US$17.7025 a bushel. They are up 48% on the year.

 

The average price at the August 30 auction is about 13% lower than that of imported soy on a delivered basis, said Tu Xuan, an analyst with Shanghai JC Intelligence Co. The price of imported soybeans will rise further to around CNY5,550 (US$874) per tonne for cargoes delivered in October and November, she said.

 

The domestic price of soymeal, which is widely used in animal feed, has risen 60% this year to a record CNY4,700 (US$740.20) per tonne, making it the sharpest gainer among agricultural commodities. During the period, the domestic prices of soyoil and soy have gained 13% and 15%, respectively.

 

Some analysts attribute a large part of the soy price surge to speculative buying on the futures market.

 

"Despite tight supply, soy prices have gone far beyond supply-demand fundamentals," an analyst said with a state-owned futures brokerage said.

 

China's consumer price index climbed 1.8% in July from the same month a year earlier, its slowest pace in 30 months. But the price of pork began to rebound in early August. Last week, it rose for a third-consecutive week to a two-month high, Ministry of Commerce data showed. However, last week's price was still 23% lower compared with the same week last year.

 

Edible-oil producers have seen profit margins tumble as costs have risen far more rapidly than retail prices. In July, the NDRC advised major crushers to avoid raising prices "unless absolutely necessary," stopping short of a repeat of last year's outright price cap. Major edible-oil makers raised prices slightly in early August to offset cost increases.

 

China Agri-Industries Holding Limited (0606.HK), a subsidiary of Cofco Group, China's second-largest crusher in terms of capacity, said that its first-half net profit fell 69% on year, as global soy prices rose much more than domestic retail prices of cooking oil.