December 24, 2007

Volatile soy market anticipated; eye on demand

Purchases from China -- the No. 1 buyer of US soy will be a key price influence, but so will the tightness of US ending stocks and uncertainties for South American production.

The debate over using grain and oilseeds for fuel versus food is another factor that will dominate market thoughts as the calendar year switches over, as near record high Chicago Board of Trade soy futures prices will force end users to bid up for supplies, analysts said.

Soy prices have been firmer all year, but the current rally started this fall, taking nearby prices to 34-year highs with aggressive buying from China a key driver.

"The future of demand for US and world soys hinge on what China's economy is, and if they can get a handle on inflationary aspects on food prices," said Dan Basse, president of AgResource Co. in Chicago.

Strong growth in China's economy has boosted demand for more varied diet, including meats and grains, lifting consumption of soys. China's consumer price index in November rose 6.9 percent from the same month last year, driven by an 18.2 percent rise in food prices, according to China's National Bureau of Statistics. Growth in the key inflation gauge, at an 11-year high, was higher than 6.5 percent growth recorded in October. The government has been reiterating that it will work hard to prevent widespread inflation and has increased the supply of grains.

Despite soy prices in a rally to 34-year highs and talk that some countries are rationing their consumption, demand from China was unabated.

Chinese imports of global soy in October totaled 2.845 million tonnes, up 27.3 percent from a year ago, and China's accumulated soy imports from January to October totaled 24.540 million tonnes, up 4.5 percent on the year, according data from China's General Administration of Customs.

The ability of the US to maintain a strong demand pace from China will go a long way in influencing prices, but with the Asian nation accounting for nearly 50 percent of US export sales, demand from other countries could be curtailed by the high prices, analysts added.