November 9, 2004

China's Soybean Market Seen Treading on Flat-Down Trend

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Weak market sentiments have been lingering in the China's soybean market since the beginning of November characterized by slow trade activities.

Currently, procurement prices for new-crop locally produced soybeans stand at RMB2,500/ton in Heilongjiang, down 8.2% from mid October. Prices in Dalian hover at RMB2,650/ton, down 5.3% from mid October, while those in Tianjin average RMB2,950/ton, down 3.3% from mid October. Prices at Shandong are at the RMB2,900/ton level, down 6.5% from mid October.

At the same time, prices of imported soybeans at Chinese ports have also dropped to the range of RMB2,900-2,920/ton at Dalian port and Tianjin port, down 4.6% from mid October. Those at Yantai and Qingdao ports (Shandong province) average between RMB2,870-2,900/ton, down 5.7% from mid October. Prices at ports in Jiangsu province hover at RMB2,920/ton, down 4.3% from mid October, while those  at Shanghai port are at the RMB2,950/ton level, down 3.3% from mid October.

Market analysts believe the Chinese soybean market will tread a flat-down trend in the weeks ahead due to the following factors.

• An increase in domestic and U.S soybean production is a primary factor depressing the Chinese soybean market. On November 5, research firm Informa Economics Inc. reported that the estimated size of the 2004-05 U.S. soybean crop to be 3.150 billion bushels with a yield of 42.6 bushels per acre. China is also set to produce a record-high soybean crop this year, pegged at 17.5-18 million metric tons;
  
  
• Weak soymeal and soyoil prices in the Chinese markets can only drag soybean prices lower. With subdued demand for soymeal, prices have continued drifting downward in the Chinese markets, dropping to as low as RMB2,300/ton in the Pearl River Delta regions and falling to the range of RMB2,200-2,260/ton in Heilongjiang as at November 9.
  
  
• Although soyoil prices in China have recovered moderately of late, such a marginal increase does not do much for the soybean market. Persistent weak demand for soymeal and soyoil has dampened soybean processors' crushing enthusiasm and they were refrained from making sizable purchases of locally produced and imported soybeans.
  
  
• Large influxes of imported soybeans lead to ample soybean supplies on the cash market. According to shipment tracking data, China is expected to receive 1.9-2 million metric tons of U.S soybeans in the month of November, and approximately another 0.4 million metric tons of South American soybeans are scheduled to arrive at Chinese ports in the same month. The big imports coupled with weak consumption will inevitably deter a recovery in the Chinese soybean market.
  
  
• Consecutive losses in CBOT soybean complex futures market weigh further on the bearish sentiments and drive lower prices of imported soybeans at Chinese ports.  

Most market participants concur that weakness will persist in the Chinese soybean market in the near to medium term.