November 29, 2010

 

Louis Dreyfus's Chinese soy unit halts output

A soy crushing unit of global commodities giant Louis Dreyfus Commodities has temporarily suspended soymeal production operations as the Chinese government's moves to curb agricultural price rises cut into crushing margins, a senior executive said Friday (Nov 26).

 

The suspension of Louis Dreyfus' Zhangjiagang crushing plant comes amid reports of other soy-crushers' output suspensions this week. Its operations, based in China's eastern Jiangsu province, will not resume until December 10, according to sources.

 

Soy crushing operations at Nantong Laibao Grain Protein Co Ltd, a division of Singapore-based Noble Group, have also been suspended until December 28, analysts said.

 

Soy crushing profit margins are rapidly shrinking as government policy tightening cuts into soy product prices.

 

A month ago, soy crushing margins neared RMB300 (US$45)/tonne, drawing many crushers back to the market.

 

However, they've fallen nearly 66% from last month to around RMB100 (US$15)/tonbe this week, analyst said.

 

Still, the stoppages at the Dreyfus and Noble soy crushing units aren't about to bring the industry to a standstill, as the two companies' soy crushing operations in China account for just about 7% of the market, according to private-sector estimates.

 

Much of China's soy-crushing industry can be idled or restarted quickly, and nearly half was temporarily shuttered as recently as April when spare capacity resulted in unprofitable margins.

 

China government officials took more steps Friday to keep agriculture food price increases at bay, as the country's top economic planners issued the fifth statement in warning against market manipulation.

 

The measures are part of a government drive to restrain prices, stepped up in the last two weeks after sharp rallies in food prices drove October inflation to a two-year high.

 

The policies have included calls to extend more bank loans for grain production, cut road tolls for produce deliveries and drastically raise vegetable output in coming months.

 

The National Development and Reform Commission has warned against speculation and hoarding. "Grain businesses must strictly maintain the highest possible inventories," said the commission, China's top economic planning agency. "They must not snatch, must not hike prices and must not hoard."

 

On Friday, the Dalian Commodity Exchange raised daily trading limits for most of its products to 6% effective Monday (Nov 29), including soy and soymeal, while trading account margins were raised to 10%. It's the second time in a week that the exchange has widened trading limits.

 

"Bourse authorities are implementing the State Council's directive to stabilise the markets," an analyst said. "In the near term, price increases will be difficult."

 

The Shanghai and Zhengzhou commodity exchanges, China's two other futures bourses, also issued directives this week to raise trading limits and trading account margins for most of their products.

 

The most-actively traded September soymeal contract on the Dalian settled 1.4% lower Friday, while September soy fell 1.3%.

 

If the government measures fail to stem inflationary pressures on food prices, due to external factors or unfavourable weather, Beijing said it may impose price controls, a controversial policy not seen since early 2008.