September 1, 2011


High US soy costs crimp Chinese demand


China has lowered purchases of nearby-month contracts of new US soy crops as surging Chicago prices hurt crushing margin outlook, traders said Wednesday (Aug 31).


Some buyers were continuing to purchase cheap Brazilian supplies, which normally run out at this time of the year, traders added.


A possible release of a large volume of temporary state soy reserves - as the government prepares to refill stocks with the new harvest - has also caused crushers to become cautious, aiming to avoid booking too many cargoes in advance for next year from US, which supplies China with large quantities from October to March 2012.


"There are cargoes scheduled to be loaded from Brazil in October, November and December, which is rare," said one trading manager with a state-owned trading house.


"Purchases from the US have been slow as current high prices would give negative crushing margins."


Traders estimated that China's purchases of US soy so far were 10% lower than the same period a year ago. China, the world's top soy buyer, imported 54.79 million tonnes in 2010, of which 43% came from the US and the rest from Brazil and Argentina.


The slow export start has hurt nearby CIF soy cash basis, which has fallen sharply since mid-August because of competition from record harvests in Brazil and Argentina.


Beijing, keen to refill its edible oil and soy reserves, is considering releasing a fresh volume of old state soy stocks to crushers in the northeast.


Crushers will be offered subsidies by the government to process soy into soyoil for state reserves while soymeal will be sold to the market, crusher officials said.


But crushers have not been told how large an amount the state will release from the reserve.


The possible release was in additional to a large stockpile of imported soy at ports following months of larger-than-needed imports and lower soymeal demand from hog sector.


The China National Grain and Oils Information Centre (CNGOIC) estimated that imported soy stocks at ports remained high at 7.28 million tonnes by the end of last week, down from 7.68 million tonnes at end-July.


That compared with normal stocks of between 3-4 million tonnes, equivalent to one month of consumption.


"There was one extra month supply stored at ports. If crushers buy the beans from ports, they can make break-even; but if they book at Chicago, they will make losses," said another soy trader.


"Before the stocks are used up, we do not expect robust purchases."


China has already slowed down soy imports in the first seven months of the year, falling 5.51% from a year-ago period to 29 million tonnes.


Imports in 2011-12 (Oct/Sept) may only grow two million tonnes to 54.5 million tonnes from 52.5 million tonnes estimated for 2010-11, said CNGOIC.


The growth was lower than the average annual growth of 4.83 million tonnes in the previous five years, it said.

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