October 24, 2003

China Importers Scramble for US Soy Supply

Global soybean importers, led by top buyer China, are scrambling for a share of the smallest U.S. crop in seven years despite soaring prices, but farmers are being tight-fisted with sales, grain traders said on Wednesday, October 22.

There was interest from Japan, Israel, Malaysia, Indonesia, Mexico and China, which has booked at least 730,000 tons in the past five days for shipment in December and January.

"They are buying our entire crop!" said one exporter, of the red-hot pace of Chinese buying that has helped stoke CBOT soy prices to their best levels in six years.

CBOT November ended 19-1/2 US cents higher at US$7.49-3/4 per bushel after rising to a contract high of US$7.50-1/2.

The rally was fuelled by the USDA reporting the sale of 454,000 tons of soybeans to China. On Monday, it reported the sale of 275,000 tons to the country, projected by the USDA to import a total 20.5 million in the 2003/04 season.

The strong global demand was erasing concerns that bumper soy production in Brazil and Argentina, the world's second and third largest producers and exporters after the United States, would narrow the window for U.S. exports this season.

"We had thought that was going to be the case, but importers seem to prefer U.S. beans for the quality, and despite the lower prices in South America," the exporter said.

"South America would also have found it difficult to book 10 to 12 vessels in a week for China," he added.

Grain traders reported a pick-up in farmer selling of soybeans but added that the amounts were not large enough to dent prices. In fact, basis values were higher midday in the CIF barge market that supplies exporters at the U.S. Gulf.

Another exporter said there was demand from a host of Asian, Latin American and European buyers but was not able to quantity the amount. "If you put them all in a pile, it'll be a very big pile," he added.

Paul Burke, director of the American Soybean Association's Asia Division, meanwhile said the demand from China is coming after a period when the country had "throttled" imports in a bid to keep domestic prices stable.

"Some plants are not operating at full capacity, and crush margins, even at these high prices, are very good. They want to be assured that their fixed assets (soy plants) are running as often and as full a capacity as possible," he added.

He also said China's issuance of a fresh batch of import permits "can't hurt."

"Whether that will alleviate all of the concerns that traders have had, I don't know. But I think it certainly can't hurt," he added.

Burke was referring to market talk that China had "blacklisted" several exporters in August, claiming that some soy cargoes they had shipped to China contained

phytophthora, a fungus that causes root rot and can stunt or even kill plants.

That led to China's delays in allowing several vessels from discharging their cargoes at its ports, grain traders said.

A trader said China's purchases come at a time when ocean freight rates from the U.S. Gulf are at record highs. He said freight was bid at US$46/ton to Japan, compared with traded levels of around US$35 about three months ago.