October 9, 2006

 

China corn, soybean prices may fall on new harvest

 

 

Corn and soybean prices in China are likely to fall in the coming months, with the new harvest in October and November liable to pressure an already oversupplied market, said analysts.

 

China's corn output is expected to total 141 million tonnes in the 2006/07 marketing year, which runs from October to September, up from 139 million tonnes in 2005/06, while demand will reach 138 million tonnes, up 3.9 percent on year, according to the China National Grain and Oils Information Centre (CNGOIC), a major government-backed think tank in the agricultural sector.

 

Corn prices were quoted around RMB1,210-1,240 a tonne in major producing regions last week.

 

Analysts said corn prices will probably fall by around RMB100/tonne when the new harvest enters the market.

 

Soybean prices will fall by around RMB200/tonne because of the new harvest, although output of soybeans may decline in the 2006/07 marketing year, said a local official.

 

"Soybean output will probably drop by around 10 percent in Heilongjiang province," said Sun Shian, an official with the Heilongjiang Statistics Bureau.

 

Heilongjiang, China's largest soybean growing region, produced 6.5 million tonnes of soybeans in the 2005/06 marketing year, accounting for around 40 percent of the country's total.

 

Nevertheless, he said prices for the new harvest of soybeans could fall to as low as RMB2,000/tonne over the next couple of months, pressured by the new harvest.

 

Soybean prices were quoted around RMB2,200-RMB2,400/tonne in major producing regions last week. The CNGOIC estimated that soybean production will total 15.9 million tonnes in 2006/07, compared with 16.35 million tonnes last marketing year.

 

Demand down, supply still abundant

 

Meanwhile, demand for corn and soy is declining as feed and processing companies have reduced purchases lately, waiting for the new harvest, analysts said.

 

"The market expects prices to fall with the new harvest coming to the market," said Zhang Yifan, a trader at China Grains and Oils Group Feed Corp.

 

Prices for the early harvest of corn, which arrived in the market in mid-September, fell by around RMB50/tonne last week, according to local traders.

 

Meanwhile, supply is still abundant, even with the arrival of the new crop in the market only a month away.

 

State warehouses still have stocks of corn from old crops. In late September, Jilin province, China's largest corn producing region, auctioned 378,000 tonnes of old crop corn, with feed and corn processing companies the main bidders.

 

Soybean stocks are also high, according to analysts.

 

"Farmers in Heilongjiang province are still holding around 20 percent of their previous crop in stocks," said Zhang Liwei.

 

Moreover, imported soybeans have a substantial impact on the domestic market.

 

"Domestic prices are bound to fall further if the upcoming soybean harvest in the US is as good as expected," said Li Honglei, an analyst at Nanhua Futures Co.

 

The US Department of Agriculture increased its forecast for soybean production for this marketing year in early September.