October 20, 2008

Talks that China will buy soy and corn for state reserves to support prices helped spur Dalian soy futures to trade limit up on Friday, 17 October 2008, said traders.

The market anticipates Beijing could buy up to 2 million tonnes of soy for state reserves, or about 11 percent of its estimated output, in an effort to prevent prices, already below planting costs, from falling further.

The 5 percent rise in Dalian follows the rebound of US soy and corn prices buoyed by a strong recovery in US stocks.

One industry official, who declined to be identified, said besides corn, there were also talks that the government would buy soy for reserves this year to support prices.

Beijing regularly buys wheat, rice and corn for state reserves, but it would be a first, if true, for Beijing to buy soy from the open market for reserves.

The government needs to support the market as many farmers have to pay back loans after harvest, but current prices are too low for them to sell, said one soy trader in Heilongjiang province, the country's largest soy area.

There was no official confirmation of the purchases. On Thursday, 16 October 2008, China had plans to buy up a small amount of cotton.

On Dalian, the most-traded May contract closed at RMB 3,211 (US$469.8) per tonne, a rise of RMB 152 from Thursday, 16 October 2008 when prices fell 5 percent. Corn contracts rose about 2 percent.

(US$1=RMB6.834)