April 17, 2012

Asia's soy may soften over China's gradual economy

As prices scaled new multi-month highs recently despite signs of slowing economic growth in top importer China, a pullback on the Chicago Board of Trade Friday (Apr 13) is heightening caution in the soy trade.

Soys' upside is capped at US$14.50 a bushel but prices will more likely head south, Singapore-based Phillip Futures said in its second-quarter outlook Monday (Apr 16).

CBOT May soy ended US$0.0425 lower at US$14.36 3/4 a bushel Friday amid broad commodity weakness due to global economic uncertainty. China's economy grew at 8.1% in the first quarter, near a three-year low.

Prices will likely soften to the low of March 2012. The near-term support remains at US$13.57 a bushel, but if CBOT soy drops below that level, they could reach US$13 levels, Phillip Futures said.

Tokyo-based veteran grains trader Nobuyuki Chino told Dow Jones Newswires last week that it would be difficult for CBOT soy to stay above US$14 after early May, when the first soy planting starts, as buyers will also seek to buy non-US beans.

But strong export data are limiting downside. The USDA Friday announced sales of 165,000 tonnes of US soy to China for delivery in the 2012-13 marketing year.

Soy futures on the Dalian Commodity Exchange settled CNY47 (US$7.46) lower Monday at CNY4,653 (US$738) per tonne amid concerns over slowing growth in China, but fundamentals remain bullish due to tight global supply, Maike Futures analyst Ma Xiaolei said.

China's decision to widen the yuan's trading band isn't likely to strongly impact commodity trade in the near term, although continued expectations for a long-term appreciation of the yuan would still underpin metal and agricultural imports, analysts said Monday.

Beijing said Saturday that it would widen the yuan's daily trading band against the US dollar to 1.0% above and below the central parity, a daily reference exchange rate, from 0.5% previously, in a major move to further liberalise its exchange-rate regime and make the yuan more market-oriented.

The widening of the yuan's band will give the Chinese currency more room to rise, and boost imports of agricultural products due to lower costs, Tianqi Futures analyst Yu Ruiguang said.