October 29, 2008

China's purchases of soy led crushers to seek out cheaper imports


China has begun purchasing domestic soy for state reserves in an effort to boost local prices and farmers' incomes, but traders said that has led crushers to seek out cheaper imports.


Chinese buyers have booked 1 to 1.5 million tonnes of US soy over the past week, almost four times the week before last, traders estimated.


According to an industry analyst, the import growth was because of expensive domestic soy.


Sinograin, the government reserve corporation, has begun purchases for a quota up to 1.5 million tonnes in three provinces in the northeast and Inner Mongolia, driving up local prices about 12 percent over the past week.


But traders said the amount was too small to support domestic prices for longer than a month.


Crushers in the north and central areas, which usually source part of their soy from the domestic harvest, were unable to get soy from farmers at prices lower than RMB3,700 (US$540.5) per tonne that was offered by Beijing for state purchases.

That price was 16 percent higher than US soybeans, including costs and freight.


"It makes no sense to buy domestic beans, U.S soybean prices have fallen so much, well below prices here," said one trading manager in Shandong. Soy plants in the north crush about 5 million tonnes of domestic soybeans a year because those plants are close to producing areas in the northeast.


Imports also picked up due to lower freight rates. The Baltic Exchange's dry sea freight index fell to a six-year low last week.


Jiusan Oils and Fats Co Ltd, the largest soy plant based in Heilongjiang, the top soy area, was not able to source enough domestic soy to start operations, said one company official.


Jiusan failed to get soy since it offered farmers RMB3,300 (US$481.7) per tonne, 11 percent lower than prices offered by Sinograin, which was buying 1 million tonnes on behalf of the government in the province.


China expects a record soy output this year, of more than 17 million tonnes. China is also expecting bumper harvests of cotton and peanuts.


Even so, the country's recent demand for soy has not been as strong as earlier this year since some crushers faced cash-flow problems after a fall of 60 percent in domestic soyoil prices and 30 percent for soymeal prices from the highest levels this year.


Traders expected soy arrivals in October and November to slow to about 2 million tonnes to 2.5 million tonnes, lower than more than 3.5 million tonnes each month from May through September.