December 27, 2010

China's soy prices stable on ample supply

Soy prices in Harbin in the north-eastern province of Heilongjiang were around RMB3,840/tonne (US$579), unchanged from a week earlier. Prices in Zhangjiagang, Jiangsu province, were around RMB4,100/tonne (US$619), also unchanged.

Farmers are reluctant to sell their stocks due to expectations prices will rise further amid broader food-price inflation, but supply concerns were alleviated by regular government auctions of soy and vegetable oils, Hongyuan Futures Co. analyst Wang Yong said.

Still, high inventory levels at ports after some crushers cut back operations as sluggish soymeal market and government price caps on edible oil crimped margins, have caused importers to slow buying, indicating a risk of a supply shortage next year as crushers expand capacity while farmers may switch acreage to other crops if returns don't increase sufficiently.

An auction Friday of 191,000 tonnes of soy reserves in Heilongjiang also failed to attract any bids, as some crushers have been forced to suspend operations due to the declining crushing margins on government measures to roll back food price increases.

Crushers can earn about RMB200/tonne (US$30) processing imported soy or RMB100/tonne (US$15) for domestic soy, as the average extraction rate of imported soy is about two percentage points higher than local soy, Wang said in a research note.

Soy prices are expected to rise with the approach of the Lunar New Year in February, typically the peak consumption season, he said.

To boost domestic soy output, the Ministry of Agriculture said Friday that China will keep soy acreage in major provinces stable next year after a 3.3% decline this year.