August 21, 2003
Asia Soybean Outlook: Premiums Under Pressure; China Uncertainty
Soybean premiums will be under pressure in the week ahead on continuing uncertainty surrounding import rules in China, trade participants said Wednesday.
High freight rates also will distance certain buyers in Japan who aren't in a rush to cover their October positions, said participants.
At the same time, however, participants acknowledged the great demand in China, the world's top soybean importer. Despite a hazy import future, the needs of Chinese crushers are still open and this will limit the downside to premiums, said participants.
"The inquiries are there, but they aren't serious enough for any deals to happen," said a grain and oilseed managing director in Beijing at a major commodities trading firm.
Market participants are bracing themselves for the General Administration of Quality Supervision, Inspection and Quarantine to possibly ban certain global trading houses from supplying soybeans to China, allegedly on contamination concerns.
Although the market learned about the impending ban from Beijing-based foreign diplomats, AQSIQ has so far failed to issue an official notice on the matter.
"There (have been) very few offers in recent days. People are talking of washouts, not buying new cargoes in all this uncertainty," said an oilseed official at China National Cereals, Oils & Foodstuffs Import & Export Corp. in Beijing.
In Japan, another major soybean importer in Asia, crushers are waiting for premiums to fall before fixing new deals.
"It's just routine buying. But some will wait for (U.S.) harvest pressure and more farmer selling before buying," said a Tokyo-based trader.
High freight rates - with nearby shipments from the U.S. Gulf to Japan steady on week around US$36 a metric ton - are also unattractive, said traders.
"I think people will finish buying October shipments. But they won't touch November shipments" until the market eases, said a second trader in Tokyo.
Lack Of AQSIQ Permits Makes It Difficult To Use MOA Approvals In Time
Premiums of October-shipment soybeans for crushing, cost-and-freight U.S. Gulf to Japan, were offered around 155 U.S. cents-165 U.S. cents a bushel to Chicago Board of Trade's November soybeans contract. Last week, offers were around 160 U.S. cents/bu for first-half October shipments, and around 145 U.S. cents/bu for second-half October shipments.
C&F from the Pacific Northwest to China, October-shipment U.S. premiums were offered around 128 U.S. cents/bu to CBOT November, versus an average of 130 U.S. cents/bu last week.
In China, it is widely believed that AQSIQ is trying to control imports to protect domestic farmers, especially when the local harvest approaches in the next month or two. Besides the possible import ban, there is also existing anxiety over vessels stranded at Chinese ports, unable to unload their soybeans because of a lack of AQSIQ permits.
Earlier Wednesday, an industry source highlighted that soybean importers may need to get fresh Ministry of Agriculture approval come Sept. 20, possibly raising already high demurrage costs.
When China extended its interim rules on crops containing genetically modified organisms to April 20, 2004, from Sept. 20 this year, the MOA said foreign suppliers will need to apply for new approval if they wanted to sell soybeans for arrival after Sept. 20. But to unload vessels, importers need AQSIQ permits. If cargoes with MOA safety certificates meant for discharge before Sept. 20 aren't issued AQSIQ permits by then, existing MOA approvals may become invalid.
"People will have to wait a maximum of 30 working days for MOA's paper. Then they have to use the new MOA paper to apply for a new (AQSIQ) permit. That's another 30 working days (maximum). The demurrage will be so high. The loss will be great," said the source from a global trading house.
But Premiums Supported As Demand Big In China
Despite all the uncertainty and talk of vessels being sold back to suppliers, soybean vessels continue to arrive in China.
Participants said demand in China is great due to an expanding crushing industry and imports can easily hit 20 million tons this calendar year if not for confusing import rules. Chinese customs data showed that the country imported around 12.3 million tons of soybeans in the January to July period this year.
"There are some washouts, but still not everyone is selling back their cargoes," said the Cofco official.
Around 40-45 cargoes of U.S. new crop soybeans have been booked for October-November shipment, according to traders's; estimates Wednesday.
Furthermore, buyers of stranded vessels are likely to try and make sure the vessels get unloaded by Sept. 20.
"They will go all out to get the necessary papers to unload their cargoes by Sept. 20," so they don't have to apply for new MOA approval, said a Beijing-based analyst with a local firm.