September 12, 2009

 

China plans long-term policy of soy, corn purchases

 

 

The Chinese government's announcement on making soy and corn purchases in the northeast a long-term policy will help prevent fluctuation in prices in the longer run, analysts said Friday (Sept 11).

 

China will continue to buy soy and corn for state reserves from the northeast whenever appropriate, the State Council said in a statement Friday.

 

It will also firm up a study on long-term policies to stabilise soy and corn output, the Cabinet said.

 

If China's soy and corn purchases from last year's harvest were a short-term measure to protect farmers' interests amid the financial crisis, Friday's statement gave the market a clearer sign the government will make such purchases a long-term policy, said Xu Wenjie, an analyst with Tianma Futures Co.

 

While the market is closely watching to see if the government continues its soybean and corn's purchases from the 2009 harvest, the government has been vague on the possible timing of such purchases.

 

China made aggressive soy and corn purchases from its 2008 harvest to prevent prices from falling, and such big purchases guaranteed the government a decisive role in setting prices this year.

 

The government bought around 35 million tonnes of corn and over six million tonnes of soy and has been releasing the grains since late July, pushing prices higher.

 

"It showed the government's idea of stabilizing (grain prices) is unchanged, and the key is the timing," said Yu Haifeng, an analyst with Tianqi Futures.

 

He added the government will continue soy purchases after the coming harvest if prices fall below RMB3,400/tonne, which is likely due to a good US harvest.

 

Big government purchases of soy and corn will not only support prices but can prevent price fluctuations since the government is better equipped to balance supply and demand, said Xu.