November 10, 2004

 

 

Low Profit Margins Lead to China's Soy Crushers Deferring US Soy

 

Profit margins for China's crushers have been hit by falling domestic soymeal prices. This has led to the country to deferring shipment of a few US soy cargoes. China is the world's top soy importer.

 

Chinese buyers might also have cancelled some cargoes in response to rising physical prices in the United States, where farmers were unwilling to sell following a halving in Chicago futures since the second quarter.

 

"Crushing margins are negative for most crushers now," according to a trader at an international house. "We haven't seen any cancellations, but some crushers postponed shipment to January. We heard two or three, but there could be more."

 

Data compiled by China National Grain & Oils Information Centre showed soymeal prices were now down to RMB 2,300 - 2,350 ($278-$234) per ton in the east and the south, falling from about RMB 3,000 ($362) at the start of October.

 

The traders held little hope for a recovery in soymeal prices in the near future, with about two million tons of soybeans expected to arrive both in November and December.

 

"It's the reality. Crushing capacity here is larger than demand," said a second trader in Shanghai.

 

"It's a buyers' market. Feed millers are bearish and they don't want to build up more stocks. Local meal demand is the same as last year, or slightly lower."

 

The traders said premiums on cost and freight basis (C&F) for US soybeans had climbed to a record 240-250 US cents per bushel over the Chicago January contract, rising from around 200-210 US cents when many Chinese buyers signed the contracts.

 

South America

 

The traders said interest had dried up for US soybeans or soymeal, and they had seen no deals on South American soybeans to be harvested after March.

 

Chinese buyers usually start booking South American beans in October or November when premiums for those cargoes are low.

 

"The point is simple. Margins are low or negative. So customers are slow to move," said a senior trader at an international house.

 

Many suppliers were also reluctant to sign forward contracts as distant as March or April. This follows huge losses suffered from Chinese defaults on contracts to buy high-priced South American beans in the second quarter, he said.

 

"It's very dangerous. I don't know who's willing to sign contracts so far ahead."

 

The traders said they were also watching for arrivals of about 30,000-40,000 tons of soymeal from India and South America booked late in September or October, when some had predicted a meal shortage before the year-end.

 

"It's not a big amount, but has a psychological impact," said another trader based in southern China.