November 23, 2011

China's stockpiling policy may not lift soy market

China's upcoming state stockpiling of soy is unlikely to boost domestic soy market in the backdrop of bearish fundamentals for soy both at home and abroad as well as global economic uncertainty, analysts said.

The government may start state stockpiling programme at the end of November. The market expected the minimum purchase price at RMB4,000 (US$629)/tonne, higher than the RMB3,800 (US$597)/tonne in the past three years. Also, a subsidy of RMB50 (US$8)/tonne would be granted to farmers for selling one tonne of soy.

China usually rolls out the soy stockpiling policy around October. However, the government has delayed the policy release this year affected by complex macro economic environment as well as changeable international soy market.

Currently, purchase prices of new soy in the country's biggest producer Heilongjiang province stand at RMB4,000-4,100 (US$629-644)/tonne. That means the floor purchase price of RMB4,000/tonne will just serve to shore up prices, but may have limited effects to drive up soy, analysts said.

Slightly weak fundamentals on the soy market determine that the stockpiling policy is unlikely to sharply spur prices, experts said. China's soy supply was ample with soy inventory at ports reaching 6.8 million tonnes as of November 18, exerting pressure on prices.

In addition, soy imports delivered in each month of November and December are expected to reach above five million tonnes, significantly increasing market supply. Global soy stock to consumption ratio stands at a high level of 24.1%, while the ratio for China is at 18.5%.

On the demand side, the domestic soyoil market is not booming in the traditional peak season for consumption. At the same time, persistent decline of meat product prices exerts downward pressure on prices for soymeal, which is mainly used for animal feed.

Currently, Dalian soy futures prices are choppy at around RMB4,300 (US$676)/tonne, while US soy prices dived below 1,200 cents per bushel last week, attracting buying from China. However, in the first 10 months of this year, China's soy imports were over two million tonnes lower than the same period of last year.

In addition, weather in South America is favourable for soy crops planting and this provides no support for US soy. Currently, the US soy has slipped back to less than 1,200 cents.

Besides fundamentals, the macro economic situation will also affect commodities including soy, analysts said. Stockpiling expectation would support soy prices but the European debt crisis' further impact on global economy should not be underestimated, they added.