December 6, 2012

 

China's soy import estimates up by only 3% in 2012-13

 

 

China's soy import forecast is seen at a minimal increase of 3% in 2012-13, down from 15% last year and the slowest increase since 2006-07.

 

This is according to 15 analysts and traders polled by Reuters for their view of China's soy imports.

 

China shocked the oilseed market a couple of weeks ago when buyers there cancelled 600,000 tonnes of soy imports. The question is whether that signals a serious slowdown in oilseed demand.


 

China's imports account for 60% of the world's soy trade. That demand supports the price of all oilseeds, including rapeseed. However, Chinese crushers are running into financial problems. They got spooked by the US drought and rising soy prices. Worried that prices would climb higher, they started an aggressive buying programme.

 

Then, when US farmers actually harvested the crop, yields were not as bad as feared. Soy prices began to soften. They fell more as it became clear South American farmers were seeding what will likely become a record large soy crop. Chinese crushers were stuck with commitments to buy expensive soy and they started posting heavy losses when the market fell. China's crushing industry is already weakened by excess capacity after a rapid crushing plant construction boom in recent years.

 

Capacity grew last year by 10% to an estimated 125 million tonnes per year, a huge surplus considering domestic consumption last year was 72 million tonnes. Also, crushers say they expect meal demand from the livestock industry will weaken, as it often does after the Moon Festival holiday in early October. While China's demand growth for soy might have slowed, US soy exports so far this crop year are good.


 

Exports sales, both those outstanding and those already shipped to date this marketing year, are well ahead of last year at the same point. Total commitments are 27.045 million tonnes. The USDA's target for the year is 36.61 million, so there are still 9.56 million tonnes yet to be sold. A drastic drop-off would weigh on oilseed prices and potentially increase the carryout at the end of the crop year. However, it is too soon to know if that will happen.


 

China's rising oilseed imports have been a critical factor in oilseed markets for about a decade, and corn exporters have been waiting for the day that China can no longer meet its own grain demand. China gave up on supplying its oilseed needs but still has a firm policy on being 95% self-sufficient in grain. However, many analysts believe China is incapable of keeping up with its rising corn needs.


 

A Rabobank report from early this year projects that by 2015-16, China's corn deficit will rise to 12-22 million tonnes from almost no deficit in 2011-12. The growing pork industry is the key driver for growing corn demand. However, the Chinese government seems intent on not losing a grip on its grain self-sufficiency goal, even as it works out trade deals with Argentina and Ukraine to pave the way for corn imports from those countries, ensuring that it will not be dependent on the US if it falls behind in the production race.


 

China's corn yields average only 60% of those in the US, but they could catch up if they adopt the latest in seed technology. However, they will have to make the change in conjunction with farm consolidation and a huge push to mechanisation to make up for a lack of labour as young rural people head for the jobs, excitement and other opportunities in cities. The farm's production grew by 50% over the previous year.


 

International seed companies such as Monsanto, DuPont Pioneer and Syngenta are also active in China, seeing potential to sell improved seed varieties. At least one company is optimistic that China can remain self-sufficient by adopting new technology. It looks like China's rural population faces a total transformation in the coming decade.