August 1, 2012

 

China's state reserves to continue soy auctions

 

 

As crushers and edible-oil makers face almost highest level global prices, triggering worries on local inflation, China will continue with soy auctions from state reserves this week.

 

State media reported last week that the government had offered major edible-oil makers soy at below-market prices in exchange for refraining from further price hikes. The move indicated that the government had become wary of letting inflationary pressures strengthen as it looks ahead to possible additional interest-rate cuts in the second half of the year to stimulate the economy.

 

The government will offer 400,000 tonnes of soy from state reserves it stockpiled in 2009-10 season in an auction Thursday (July 26), the state-backed China National Grain & Oils Information Center said over the weekend.

 

The auction has been held weekly since May but was suspended last week after the soy harvested in 2008 were sold out.

 

Soy from state reserves are usually offered at prices 10% cheaper than imported soy.

 

The National Development and Reform Commission, Beijing's top economic planning agency, asked edible-oil producers Wilmar International Ltd. (WLMIY) and Cofco Group not to raise cooking oil prices "unless absolutely necessary," state media reported last week, citing a Cofco executive.

 

Wilmar and Cofco control 60-70% of China's retail cooking oil market. This month, they announced around 5% price increase for some products due to rising soy and peanut prices.

 

Soy futures contracts on the CBOT hit a record high this month due to a severe drought in the US Midwest.

 

In 2011, the government sold around 2.6 million tonnes of soy to major edible-oil makers, including Wilmar and Cofco, in exchange for their promise to keep prices stable, CNGOIC data showed.

 

The front-month soy futures contract on the Dalian Commodity Exchange has risen 13% this year while soymeal has surged 47% and soyoil has gained 8%.

 

Demand for state soy has risen significantly since April. The government has sold about 1.1 million tonnes of state reserves soy since April, CNGOIC data showed.

 

Beijing still holds around 10 million tonnes of soy in state reserves, CNGOIC data showed, suggesting it would be able to limit domestic price increases amid surging international prices.