April 29, 2004

 

 

China Demand Slowing; Soybeans Registers Biggest Drop in a Week
 

Soybean futures in Chicago recorded their biggest decline in a week, due to speculation that China will succeed in slowing the growth of its economy. This will, in turn, ease demand for imported oilseeds to make animal feed and cooking ingredients.

 

Soybeans reached a 15-year high earlier this month partly because of surging demand from China, the world's largest importer. The government now wants to slow economic growth that reached a six-year high of 9.1 percent in 2003. At the urging of the central bank, some lenders have stopped making loans.

 

"China appears to be trying to slow an economy that most countries would be envious to report," said Dale Gustafson, a senior grain analyst for Citigroup Capital Markets in Chicago. "The policy moves could restrict the inflow of imports and that has caused the market to be on the defensive."

 

Soybeans for May delivery fell 14.5 cents or 1.5 percent, to $9.80 a bushel on the Chicago Board of Trade. This is the biggest one-day decline for a most active contract since April 21. Prices have fallen 7.9 percent since reaching a 15-year high of $10.64 on April 5.

 

The price of soybeans is 61 percent higher than a year ago, because a drought cut U.S. production by 12 percent and Chinese demand for imported soybeans reached a record.

 

Vice Governor Wu Xiaoling of People's Bank of China, said the government's efforts have been succeeding, with growth expected to slow to less than 8 percent this year.

 

China's Bank of Communications Ltd., Shenzhen Development Bank and Shanghai Pudong Development Bank said they halted loans until May 1. Wu had appealed for "cooperation" in curbing credit that helped fuel economic growth.

 

Soybean futures at China's Dalian Commodity Exchange were down 2.5 cents at $12.10, a reflection of slowing demand, as the high cost of imports made it unprofitable for some processors to make animal feed and vegetable oil.

 

"There has probably been more slowdown in consumption than what we have seen in the actual data," said Robert Lekberg, a grain analyst for Goldenberg Hehmeyer & Co. in Chicago. The 3.8 percent rally in Chicago soybean prices yesterday was "way overdone," he said.

 

The government may import about 20 million tons of soybeans this year, similar to the figure in 2003, said Zhang Zhaoxin, an analyst at the agriculture ministry earlier this month. Last year, Chinese imports jumped 83 percent to 20.7 million tons, according to the China National Grain & Oils Information Center.

 

China's soybean harvest may rise from 16.5 million tons in 2003 to 18 million metric tons. Meanwhile, domestic consumption may increase 4.7 percent to 35.9 million tons, up from 34.3 million tons.

 

Increased local production may help stem an increase in China's soybean import bill, which soared to about $4.2 billion last year.

 

According to Zhang, China's soybean crushing capacity will increase 1 million tons to 27.4 million tons in 2004. Growth in factory capacity is slowing, as the increase in soybean prices discouraged millers from expanding their plants.