October 29, 2003

 

 

China's Soybean Prices Set New Six-Year Highs
 

China's soybean prices set new six-year highs on Tuesday, as it consumed one-third of U.S. soybean exports last season, continuing a torrid pace of buying and drew down U.S. supplies already shrunk by drought.

The red-hot soybean market also buoyed corn and wheat.

At the Chicago Board of Trade, soybeans for November delivery closed 23-1/2 cents a bushel higher at $7.82, the highest closing price since September 1997.

 

"This was all about China," said Joe Bedore, CBOT floor analyst for brokerage house FC Stone. "It's a demand-driven rally, which has really gotten everyone's attention."

 

China's rising incomes have fed growth in its meat sector, with soymeal the prime protein additive for livestock herds. Soyoil and beancurd are also heavily used in Chinese diets.

 

China's soybean imports are now projected to rise to 20.5 million metric tons in the current season, which is double the 10.4 million imported two years ago. But drought has shrunk the U.S. soybean crop by 7% this year, alarming China's soybean processors and sparking a huge rush of buying.

 

As of October 16, since the start of the new U.S. marketing year on September 1, China's soy buying totaled 3.3 million tons, up about 80% compared to a year ago. But traders said China has continued its buying, including 454,000 tons confirmed by the U.S. Agriculture Department on October 22 and another 170,000 tons announced by USDA on Tuesday morning.

 

"It is possible that we are underestimating Chinese import demand," Oil World, a widely followed industry monitor, said in a letter to clients released on Tuesday. "If this is the case, the additional demand rationing has to be accomplished by consumers in the rest of the world."

 

The China factor also played a role in other grain markets. China has in recent years aggressively sold cheap corn to former U.S. customers like South Korea. It had also sold cheap feed wheat, further eroding U.S. market share.

 

But increasing Chinese domestic corn prices in the past week and rumors that China may have canceled some feed wheat exports fed grain trade speculation that the Chinese government may be shifting gears and deciding to preserve stockpiles.

 

"The shortfall in China has been gradually widening in some provinces, which may finally lead to a general tight supply nationwide," Li Jingmou, general manager of China Zhengzhou Grain Wholesale Market, told the China Daily on Tuesday.

 

The bullish implications for the United States, which is presently still the top exporter of wheat, corn and soybeans globally, was not lost on Chicago traders on Tuesday.

 

Corn for December delivery closed 5 cents higher at $2.40-1/4 a bushel, hovering at six-week highs despite a record 10-billion bushel harvest now under way. December wheat rose 10 cents to $3.77-1/4, a two-month high.