September 14, 2012

 

 

China will face tight supplies of feed meal from the fourth quarter of 2012 through early 2013 as a summer drought in US reduces grain supplies.

 

Soymeal futures in China have rallied to record highs since August due to a rally in US corn and soy prices. A further tightening of meal supplies later this year would push up pork prices and drive inflation higher.

 

China's soy imports from October this year to March 2013 are expected to be no more than 25 million tonnes, down 3.2 million tonnes from the same period last year, said Guo Feng, deputy general manager at state-owned Chinatex Grains & Oils Import and Export Company. Ltd.

 

Soy imports will likely see the steepest fall in October, with volumes expected to decline to around 2.5 million tonnes, compared to 3.8 million tonnes in October 2011, Guo said.

 

"But soymeal consumption will remain robust during the period ... Supplies of pigs will remain at a high level," Guo told an industry conference held in the southern coastal city of Shenzhen.

 

Domestic crushing volumes for soy are expected to be around 28 million tonnes from October to March, against soy imports of 25 million, which means crushers will have to draw down their soy and meal inventories.

 

The tight supply situation will only ease when South American soybeans arrive early next year, Guo said.

 

Worries of food inflation may prompt the government to start releasing soy and rapeseed oil stocks, traders said. China is due to announce its new leadership in October, and the government is keen to keep food prices steady before then to avoid any public discontent.

 

China has been holding bi-weekly auction of soy from the 2008/2009 harvest since late last year and bidding volumes have surged since May this year due to rising import prices. Sales reached a record high of 402,375 tonnes on August 16.

 

"Rising prices could prompt the government to release its soy reserves stockpiled in 2010/2011," said Eric Zhu, who runs his own grains trading firm.

 

Traders estimate the government's soy reserves at as much as 10 million tonnes. The state had planned to sell three million tonnes of beans in the current auction and has so far sold 2.64 million tonnes.

 

On soyoil, a staple for cooking in China, the market will be better supplied because the government is already holding a large volume of rapeseed oil in its edible oils reserves, which can be released into the market, Chinatex's Guo said.

 

There are also ample supplies of substitute palm oil in Malaysia and Indonesia.

 

The state's edible oil reserves are estimated at 5.5 million tonnes and industry participants expect Beijing to release some stocks to help ease rising prices.

 

China's meal demand from livestock breeders is expected to grow 3% in the 2012/2013 marketing year, which begins in October, against an expected 7.3% increase this year, Chinatex said, adding that soy imports are expected to be at 60 million tonnes in 2012/13.

 

Demand for edible oils is expected grow 1% in 2012/2013, against a flat growth this year, it said.