September 9, 2011

 

 

China's farm products market is poised to rally in September and October given surging demand in the approaching Mid-Autumn Festival and the National Day Holiday, with strong global corn and soy market lending support to prices.

 

Many big edible oil producers in China have recently raised their retail prices by 5-10%. However, many crushing mills are still unable to make breakeven with such price rise. With booming consumption in the following two months, oil processing plants are likely to further hike prices, in turn boosting futures prices.

 

The domestic edible oil producers' weekly soy consumption has risen from 1.1 million tonnes at the end of August to 1.3 million tonnes in early September. However, the soy imports are anticipated to fall in August and September.

 

The latest report from the Ministry of Commerce predicted that China's soy imports would reach 3.85 million tonnes in August, down 28% from the previous month, and would further slip to 3.2 million tonnes in September.

 

With low level of imports in peak season for consumption, soy stocks at ports will see a drop in the following period, which is another stimulus for the oilseeds market.

 

Meanwhile, boosted by persistent rise of pork prices, livestock breeding sector's climate is improving and this has pushed up stocks of live pigs and thus driven up feed demand.

 

Currently, edible oil processing mills are accelerating their destocking of soymeal due to increasing demand on the market. Although soymeal purchases keep a slow pace amid prudent sentiments on the market, the prices keep firm at RMB3,250-3,350 (US$509-524)/tonne, significantly higher than that in the July to August period.

 

As pig farms are active in restocking stimulated by the government's supportive policies, soymeal demand is likely to speed up.

 

Since late August, wheat and corn futures have halted drop and rebounded propped by drought in southwestern areas. Analysts said that grain prices still have rise room in the future.

 

This year, wheat purchases in major producing areas are slower than the previous years as the state wheat stockpiling programme has not been started so far due to higher market prices than the protective price set by the government. The market trading is dull. Meanwhile, farmers generally hold wait-and-see stance on expectation for higher prices because quality of new wheat crop this year is better than last year.

 

Recently, rainy weather in major wheat producing provinces of Henan, Anhui and Shandong hampered purchases on the market. As flour mills' wheat demand is picking up, wheat futures are expected to go up further.

 

Currently, corn stocks at ports of northeast China, the biggest corn production in the country, are dropping quickly and have slumped more than 40% from late July to between 900,000 tonnes and one million tonnes.

 

Meanwhile, expectation for price hikes is riding higher in southern marketing areas. In the light of this, futures prices still have rise room before new crop comes onto market about one month later.

 

Some international institutions have already revised down estimate on US soy output in crop year of 2011-2012 before the USDA releases its monthly supply/demand report.

 

The International Grain Council predicted that the US soy production would drop 8.2% to three-year low of 83.2 million tonnes affected by persistent drought. Besides, autumn frost may also affect the crop in its last growth stage.

 

The high expectations for output decline and lower quality of US soy have stimulated many speculative funds to add positions on soy.