October 26, 2005


Asia Soybean Outlook: Premiums to fall; eye on bird flu



Premiums of soybeans delivered to Asia are likely to be pressured by limited demand due to confirmation of new bird flu cases in various parts of the world, as well as increased supply because of ongoing harvesting in the U.S., trade participants said Wednesday.


China reported its third outbreak of bird flu in a week on Wednesday. More than 500 chickens and ducks were killed by the latest outbreak Saturday in central China, which prompted authorities to destroy another 2,487 poultry in an attempt to keep the disease from spreading, the government's veterinary bureau said in a report.


The H5N1 strain of bird flu has killed or forced the culling of tens of millions of birds since it first emerged in 2003.


"Now hardly one day goes by without hearing some headline news talking about bird flu somewhere. I think it's a concern and is definitely bearish on the whole feed sector," said a Tokyo-based soybean trader.


China is the world's largest soybean buyer. The country is estimated to have imported 25 million tonnes in the year ended Sept. 30.


But most Chinese soybean crushers now worry about high inventories and sluggish sales of compound feed.


Among China's compound feed output, 50% is consumed by the broiler and layer sector. So the bird flu scare is likely to have a negative impact on feed demand.


Luckily, the whole cycle of poultry production is much shorter compared with livestock production, traders said. So once the situation becomes clear, poultry production as well as feed consumption can pick up quickly.


In Japan, buyers are negotiating for December and January shipments, mostly from the U.S. Gulf.


U.S. soybeans were quoted Wednesday at 200 U.S. cents a bushel over the Chicago Board of Trade January contract, cost and freight to Japan in December, traders said.


"We noticed that U.S. inland barge traffic is still tight. With harvesting of all grains are going on there, barge rates could rise further," said another Japanese soybean trader.


However, the gains in barge rates are unlikely to lead to higher overall premiums, because producers are under pressure to sell during the harvesting season, while buyers are now reluctant to commit big volumes.


In the soymeal market, India is estimated to have committed to export more than 600,000 tonnes of soymeal in the next three months, to Japan, Southeast Asian countries and surprisingly, China.


China is said to have bought 100,000 tonnes of soymeal from India this year, because Indian soymeal is cheaper than those manufactured domestically using imported U.S. or South American soybeans.


On a cost and freight basis, they range between US$225/tonne and US$260/tonne.


India was blessed with late rains in September this year, which are believed to be helping the soybean crop. According to the latest estimates from the Soybean Processors Association of India, output is expected to reach 6.1 million tonnes this year, up from 5.8 million tonnes last year.


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