August 22, 2011


Crushers call in question China's exclusive soy auction plan


China plans to hold a special auction to sell four million tonnes of soy from its state reserves to a select group of five crushers to tame prices, but industry sources have cast doubt on such moves.


The soy would be sold at a discounted base price of around RMB3,500 (US$547.93)/tonne to five crushers, including Yihai Kerry Group and state-owned Cofco Group, according to the country's major grain traders


However, an official source with direct knowledge of such sales said the authorities have no such plans. Instead, it would be holding a regular state auction that would be open to all crushers, as it has done over the past months.


"The sales will not be catered solely for the five crushers, but to all participating companies," said the source.


Beijing last offered about three million tonnes of cheaper-than-imported state soy reserves to the five crushers in April, when they were asked to cap retail soyoil prices.


That move then prompted some buyers to cancel or defer soy cargoes from South America.

Industry sources also said there was no need for Beijing to offer a flood of cheap soy to its top crushers this time, as the domestic market was well-supplied due to strong imports in recent months.


Soyoil futures in China have also been largely steady over the past three months, although these crushers have raised their retail prices by about 5% earlier this month.


The most-traded May 2012 soyoil contract was traded 0.9% lower on Friday (Aug 19) at RMB9,984 (US$1,562)/tonne after Thursday's heavy selloff in global equity markets.


Industry sources also doubted that the government would be able to sell as much as four milllion tonnes at the public auction.


Beijing has conducted regular state soy and rapeseed oil auctions since October last year to help cool food inflation, but the soy auctions have failed to achieve any sales as crushers have been put off by the high base prices, which was last set at RMB3,900 (US$610)/tonne.


Crushers regard the prices as too expensive for beans that are often two-three years old and would rather turn to imports that offer fresh supplies.


A second industry source said the final sales volume at the next auction would depend on the base price set by the government.


Once the government completes the latest auction, it would only have 1.4 million tonnes of state reserves left, according to the China Grain Reserves Corp.

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