September 9, 2011

 

 

China's soy imports are likely to gain more than 10% to around 58 million tonnes in 2011-12 as it boosts pork production to ease supply shortages and food inflation.

 

The country's imports in the year to September 2012 could even hit 60 million tonnes if pig farmers, lured by record high pork prices, expand stocks, said Guo Feng, a deputy general manager at state-owned trading house Chinatex Grains and Oils Import and Export Co.

 

A rise in China's soy imports may support benchmark Chicago Board of Trade soy futures which have been underpinned by concerns over harsh weather threatening to curb yields in the US.

 

"Pig production is closely related to soymeal consumption," Guo said, adding that a higher pig inventory will lift meal demand and soy imports.

 

Guo's estimate of Chinese imports is higher than 56.5 million tonnes forecast by the USDA and the 54.5 million tonnes estimated by the official China National Grain and Oils Information Centre (CNGOIC).

 

Monthly soy imports may hover around five million tonnes per month in the fourth quarter this year and will see rising imports from South America, he added.

 

China is estimated to have bought 52.5 million tonnes of soy in 2010-11, according to CNGOIC.

 

Pork prices in the country will continue to rise until the end of the year as supplies remain tight and feed costs increase, an industry official said.

 

Any increase in pork prices could have an impact on overall food inflation in the months ahead, even as policymakers take steps to curb higher prices.

 

"Corn prices have continued to rise over the past few months, so that will increase production costs for pig farmers," said Qiao Yufeng, vice president of China Animal Husbandry Association.

 

Pork prices, a primary reason behind China's persistent inflation, jumped about 57% in the year to July, and helped push inflation in July to a three-year high of 6.5%.

 

As a result, the government has taken a series of measures, including boosting supply and imports, to stabilise pork prices, but they have rebounded to record highs this month ahead of the national day holidays in October when consumption jumps.

 

Analysts expect annual inflation to fall slightly to 6.2% in August, partly due to a higher year-ago base, which would reduce expectations for further policy tightening.

 

Qiao added that supply of live hogs is likely to see a meaningful increase only in the first half of next year.

 

"There are reports forecasting the recent government measures to boost hog supplies will bear fruit by the fourth quarter - that's not possible," Qiao said. "Hog supplies are still tight and it will take an average of one year for piglets to grow."

 

Chinatex's Guo said soymeal demand was likely to grow 8% in 2011-12, up from 5.6% this year following increases in pig stocks, although the restocking pace had slowed compared with 2007 when pork price hit record highs.

 

Despite the bullish outlook, Chinese soy importers remain on tenterhooks amid uncertainties over the release of state soy reserves.

 

The National Development and Reform Commission at a recent meeting said it may drop its earlier plans to sell 3-4 million tonnes of soy reserves to crushers and consider processing the beans for stockpiling vegetable oil, according to a senior official from a state-owned trading house.

 

With the domestic soy harvest drawing to a close, a state auction would weigh on prices and hurt farmers, while processing would tie up crushers' capacity and limit their ability to buy from farmers.

 

"It's a very difficult timing for the government as either decision could have a big impact on domestic prices," Guo said.

 

However, the impact of a state auction could be mitigated if the government quickly moves to replenish reserves after a sale.