June 7, 2004

China Soybean Crushers Divided, Eyeing Demand, Imports

China's soymeal market closed narrowly mixed this week amid divided views toward the price trend in the coming months among crushers, according to local traders and analysts.
 
The low prices have apparently attracted more buying interest from feedstuff and livestock producers, traders said. In the week ending Friday, soymeal prices offered by East Ocean Grain and Oils Co. Ltd. stood at 2,620 yuan ($1=CNY8.277) a metric ton, the lowest soymeal price in China, which attracted bargain hunting from end users. The daily soymeal trading volume in Zhangjiagang, where East Ocean is located, was estimated to be 30,000 tons or more during most of the week, traders said.
 
But in Heilongjiang in northeastern China, where crushers rely more on locally produced soybeans, soymeal prices stood around CNY2,950-3,000 a ton, virtually unchanged from one week ago, traders said. Last Saturday, some major crushers from northern and northeastern China held a meeting in Beijing to agree not to sell soymeal under CNY2,900 a ton. But as of Friday, most of the soymeal prices in China were between CNY2,700 and CNY2,800 a ton, as smaller players were caught between the confrontations of the largest crushers.
 
"East Ocean is still offering the lowest prices this week, and many players were watching closely at the next move of these large crushers to decide if to follow or not," a manager from a grain and oilseeds trading house in Beijing said.
 
CRUSHING LOSSESS MOUNTING
 
Most Chinese crushers are reeling under heavy losses from the low soymeal prices, and soybean imports for the rest of current market year are expected to drop sharply, traders and analysts said Friday.
 
For processing one ton of imported soybeans, Chinese crushers could suffer an average loss of CNY700-800, compared with average losses of CNY500-600 a ton last week, said a trader from China National Cereals Oils and Foodstuff Import & Export Corp., or Cofco, Friday.
 
"It is unlikely that soymeal prices could recover to over CNY3,000 a ton if the cost of imported soybeans fall to similar levels in June and July," said a second trader from a major crusher in Shandong.
 
The landing cost of imported South American soybeans in June could fall sharply to below CNY3,000 a ton, cost and freight China, traders said Friday, a stark contrast with the current cost of CNY3,500 a ton of imported soybeans and over CNY4,000 a ton in May.
 
"I even heard some quotes of CNY2,700 a ton for Brazilian soybean cargoes, C&F China," the trader from Cofco said Friday.
 
The uncertainty over the fate of Brazilian soybean cargoes could be the reason behind the sharply lower offer, after China suspended seven foreign companies from exporting Brazilian soybeans to China since late May. But a few traders and analysts disagreed about the gloomy prospect of soymeal markets.
 
IMPORT AND DEMAND KEY TO RECOVERY
 
The soymeal markets could show signs of bottoming in the coming week, after the steep fall in the past two months, because of the improved demand from end users, added the manager in Beijing.
 
The demand for eggs, poultry and meat is expected to stay strong before the traditional Dragon Festival on June 22. The wholesale prices of fresh eggs have risen significantly to CNY5.6 per kilogram in Beijing, up from the CNY4.8 a kilogram about one and half a months ago, due to limited supplies, traders said, citing a report from local newspaper Friday.
 
"The poultry stock was down after the bird flu destroyed millions of birds in China, which might be the reason for tight supplies of eggs when the demand improves in holiday," a market analyst from a local brokerage house in Beijing said Friday.
 
The expected lower imports of soybeans could also be a supportive factor down to the end of current season.
 
China soybean imports in the 2003-04 (October-September) marketing year are forecast to be down to 16.00 million to 19.00 million tons, according to an informal survey of traders and analysts from trading houses and brokerage houses this week.
 
In comparison, China imported 21.42 million tons of soybeans in 2002-03, official figures show.
 
"The fact is, China soybean imports in July and August will be much lower than earlier expectations, and most of the imported supplies could be in the hands of crushers associated with Cofco," said a trader from a Hong Kong-based oilseeds company Friday.
 
China soybean imports in 2003-04 are forecast to be 19.00 million tons, traders said, citing the latest forecast by a government-backed grain think tank, compared with 20.25 million tons estimated by the U.S. Department of Agriculture.
 
"Those who have deep pockets will survive and have bigger power over prices if they control most of the imported soybeans," added the trader.