October 24, 2011


China's soy market takes hold despite futures slump


Despite a decline in futures prices, soy prices in China's major producing areas were mostly stable in the week to Friday (Oct 21), underpinned by a sharp decline in domestic output and farmers' hoarding of new crops.


Prices in Heilongjiang, the top soy-producing area that accounts for more than 40% of China's total output, were in the range of RMB4,040-4,120 (US$633-645)/tonne, unchanged from a week earlier.


Traders began to crowd into Heilongjiang early this month to buy soy from local farmers, but volumes have been very thin as farmers considered the offer prices too low, a local trader said.


Farmers are still waiting for cues from the central government on whether it will significantly increase purchase prices for its soy reserves.


Traders said that Beijing may have set its purchase price for new-crop soy at RMB3,900-4,000 (US$611-626)/tonne, lower than RMB4,200 (US$658)/tonne expected by farmers. Last year the price was set at RMB3,800 (US$595)/tonne.


"If the price is set too low, domestic prices will likely remain weak for a long time," analysts said.


Dalian Commodity Exchange soy futures lost 2.6% this week, compared with a 3.5% decline in their Chicago Board of Trade counterparts in the week to Thursday. Ex-factory soyoil prices, which closely track CBOT, were 2% off.


China will offer 300,000 tonnes of soy from state reserves Tuesday (Oct 25), the National Grain and Oil Trade Centre said.


The government normally holds bi-weekly soy auctions as part of its efforts to stabilise food prices.