September 26, 2011

China's soy output cut underpins weekly prices

Soy prices in China's major producing areas rose in the week to Friday (Sep 23) as traders' confidence increased amid significant decline in domestic output.

Crushers and major traders in Heilongjiang, the top soy producing area that accounts for 40% of China's total output, raised purchase prices to RMB3,950-4,000 (RMB618-626)/tonne, compared with around RMB3,900 (US$610) a week earlier.

But trade was thin as the harvest is ongoing and only a limited amount of new-crop soy was available for sale.

China is expected to conclude its soy harvest by mid-October.

Farmers are reluctant to sell as they expect prices to rise further, traders said, adding that the government will likely raise soy purchase prices to RMB4,200 (RMB657)/tonne from RMB3,800 (RMB595)/tonne a year earlier.

"Even if the government buys soy for state reserves at RMB4,200/tonne, farmers are still more willing to grow corn," a Heilongjiang-based trader said.

Corn prices have risen around 25% so far this year, while soy prices have been almost unchanged.

"Soy prices have sufficient momentum to rise amid sharp decline in domestic output," he said.

The state-backed China National Grain and Oils Information Centre said 2011 soy output was expected to fall 10.5% to 13.5 million tonnes. Market participants said the output might fall more than 15%.

Traders have become more active in booking US soy as CBOT prices have fallen around 15% to around US$12.6/bushel since end-August, analysts said.