March 27, 2008

 

China could suffer from soy shortage due to Argentina's farmer strike
 

 

A recent tax increase on agricultural exports in Argentina has sparked a nationwide farmer strike that halted outgoing shipments, rising fears that China may experience soy and soy oil shortage in May.
 

Argentina's farmer strike has triggered a force majeure, which is a contract clause that frees a supplier from their obligations in extreme unforeseen circumstances, in soy and soy oil shipments to China. The clause has also been activated for meal cargoes to Europe.

 

As a result of the strikes, Argentina's soy market has been frozen and China requires soy imports of between 2 million and 3 million tonnes per month.

 

Up to 1 million tonnes of soy exports and five cargoes of soy oil to China have been affected, and China was forced to turn to the US and Brazil for stocks, according to an executive with Chinatex Grains & Oils Import & Export Corp, a major soy importer.

 

China has switched 300,000 to 500,000 tonnes to US soy, but the US and Brazil would not be able to absorb all the orders from the Asian country due to soaring prices caused by the strikes.

 

Soy futures at the Chicago Board of Trade have risen by its daily limit in early Asian trade on Wednesday, boosted by the strikes that have caused a switch to US shipments.

 

China's domestic vegetable oil prices are rising fast, leading it to import 300,000 tonnes of soy oil per month. China has also made the purchases for state reserves in a bid to curb inflation that is running at a 12-year high.

 

A Chinese executive of a soy crusher based in the south said that if the strike continues beyond late April, there would certainly be a shortage in China as there is oil demand despite the demand being slightly sluggish.

 

"Demand is there. Buyers have not been active because of the recent setback on CBOT. But when they come back, there will be a new round in the rally," said an executive at one of the major international houses.

 

The strikes started on Tuesday after Argentina's president Cristina Fernandez refused to repeal a tax hike on agriculture exports. Not only is the soy market frozen as a result, but beef production has also been forced to a halt.

 

Buenos Aires' stockyard slaughters at least 9,000 cattle per day, but slaughter rate has plummeted to zero this week since the strike. Shops have also begun the emptying of beef, milk, chicken and cooking oil.

 

Soy taxes have been raised from 35 percent to 45 percent, with smaller increases on corn and other agricultural products.

 

The strike organisers have declared that the two-weeks strike would continue 'indefinitely' while the government has announced that it would not start talks until the protests stop.

 

Argentina is the world's third largest soy exporter after the US and Brazil.