November 18, 2013

 

China to continue buying local soy, corn for reserves

 

 

The Chinese authorities will continue to buy soy and corn for state reserves from farmers this year, a move that is expected to keep domestic prices higher than the global market and which is bound to trigger more imports.

 

It had already been forecast that in order to meet robust feed grain demand amid rising meat consumption, China, which buys more than 60% of soy traded in the world, will import a record volume of the oilseed in 2013-14.

 

The National Development and Reform Commission (NDRC) said the government will buy domestic soy at RMB4,600 (US$760) per tonne, unchanged from last year's level, and nearly 10% higher than current US soybean prices.

 

"Given falling global soy prices, the government has not raised its purchase price this year. Domestic output is no more a concern for the government," said one analyst with an official think-tank.

 

Chicago Board of Trade soy futures have lost 6.8% since hitting this year's high of US$14.06 per bushel (US$516.62/tonne) on August 27 as better-than-expected US harvest replenishes supplies.

 

China's own soy output, used mainly to make tofu, continued to fall for the third year in a row this year, with output forecast at 12.2 million tonnes, down 6.5% from last year, said the China National Grain and Oils Information Centre (CNGOIC).

 

The NDRC also said Beijing would buy domestic corn at between RMB2,220-2,260 (US$365-371) per tonne for state reserves. This price has also triggered buying interest in US corn, where prices have been pressured by a record harvest.

 

US corn futures have fallen for the last four months to trade around the lowest since August 2010.

 

China, the world's second largest corn producer, stockpiled more than 30 million tonnes of corn last year.

 

To be able to encourage them to buy domestic corn and rice in the growing areas due to tight state storage capacity, Beijing, for the first time, has agreed to offer subsidies to qualified domestic companies, said the commission.

 

Qualified companies located outside growing regions will be given RMB140 (US$23) per tonne for corn or rice purchases in the northeast areas, it said.

 

"US corn prices are RMB500-600 (US$82-99) per tonne cheaper than domestic corn and the subsidy is too small to have any impact on imports," said Li Qiang, chief analyst with Shanghai JC Intelligence Co. Ltd. (JCI).

 

Although private mills are actively importing cheap corn, Beijing's huge state corn reserves may leave the government reluctant to issue more import quotas to state-owned companies next year, analysts said.