November 11, 2008

China's soy futures likely to plummet due to economy downturn


Analysts predict China's soy futures market to dive despite a moderate present falling trend and a likely small rebound in the next two weeks.


With the onslaught of the global financial crisis, crude oil price has hit a record low in the past two years. And since oil has extensive uses, the oil price fall has affected most of the commodities and soy is hit badly.
The fluctuation of crude oil price affects the cost of seeds, fertilisers and pesticide in planting soy, as well as its transportation cost as 60 percent of China's soy consumption relies on import.


The slide of crude oil price drags down industrial demand of soy, which serves as a substitution to produce bio-energy.


Beside the drop in oil prices, the loss of China's edible oil enterprises, which is brought on by international market fluctuations since China imports edible oil, also attributes to a lower demand of soy. Hence, enterprises will rather stock up than sell soy oil, weakening demand for soy.


As for bio-diesel oil enterprises, they are cutting down on soy demand, bearing in mind the high cost of transformation from soy to diesel oil and the crude oil price decline.

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