November 15, 2010

China may sell reserve soy to curb price gain

China may begin selling stockpiled soy from this week to slow gains in food prices, helping to trigger a sell-off of oilseeds on Friday (Nov 12).

Total sales, which may come to 2.6 million tonnes, will likely take place in Heilongjiang province, according to sources.

Soy, soyoil and palm oil in Dalian plunged by the daily limit amid talk of sales and as investors speculated policy makers may raise interest rates for the second time in two months to curb inflation. The government has sold aluminum, zinc, sugar, cotton and corn this year in an effort to ease supply shortages and curb price gains.

"A round of tough control measures on the grain market is being worked out and large volumes of stockpile sales and policies aimed at curbing speculation may come out anytime," China Grain Reserves Corp said Friday.

The government will "install mechanisms" to curb speculation in essential commodities, according to the National Development & Reform Commission.

Asian equities and US stock-index futures also slid on concern China may raise interest rates as consumer prices jumped 4.4% in October, the fastest pace in two years. The People's Bank of China boosted its benchmark one-year lending rate on October 19 by a quarter of a percentage point to 5.56%, the first increase since 2007.

Soy for September delivery on the Dalian Commodity Exchange delivery slipped as much as 4% to RMB4,584 yuan (US$690) a tonne. Soyoil declined the same amount to RMB9,992 (US$1,505) a tonne.

There were also talks the government may sell some soyoil and rapeseed oil, sources said.

"Even as the fundamentals on oilseed products are bullish, traders who have been building up their positions now find themselves caught by selling pressure given policy uncertainties," an analyst said.

China has bought about five million to six million tonnes of soy from farmers in Heilongjiang for temporary reserves in the past two years, according to official data. China's soy inventory by September 30 may be 16.6 million tonnes, the USDA forecast November 9, revising the inventory up 5.9% from its October projection.