November 23, 2012

 

 

China's soy imports will rise at their slowest in six years due to weak demand and low crushing margins.

 

China, which buys 60% of the world's traded soy, is likely to import 61 million tonnes in the year to September 2013, a gain of just 3% from a year ago and 3% below a USDA estimate.

 

A slowdown in China's soy imports, coupled with expectations for bumper production in South America early next year, could pile more pressure on benchmark US futures.

 

The market has slid more than 20% since hitting a record top of US$17.94-3/4 a bushel on September 4.

 

"We are very pessimistic about demand," said Li Jianlei, a senior researcher at COFCO Futures, a unit of state-owned farm trader COFCO. "I think demand from the livestock sector will decrease after the Lunar New Year."

 

Chicago soy futures plunged to a five-month low last week, dragged down by news of Chinese importers cancelling 600,000 tonnes of US soy after a drop in prices made purchases unprofitable.

 

China's soy imports grew more than 13% in the year to September 2012. This year's growth of around 3%, according to a median forecast of 15 analysts and traders, will be the slowest since 2006/07.

 

The increase in import prices this summer contributed to the losses in the soy crushing industry, which is also grappling with overcapacity and a decline in domestic demand for products such as soyoil and soymeal.

 

Crushers have been making losses since October.

 

Chinese oilseed processors will reduce purchases following the Lunar New Year break early in February, after having booked large volumes of expensive soy in recent months.

 

Investors in the soy market are bracing for near-record production in South America that could drag the market lower, given slow Chinese demand.

 

Brazil, the world's second largest exporter, is forecast to produce 81 million tonnes of soy in 2013, the USDA says, up 22% from 66.5 million. Argentina's output has been estimated at 55 million tonnes up 34% on the figure of 41 million a year ago.

 

Still, some analysts expect imports to rise faster.

 

"We are pretty much in line with USDA's estimate," said Victor Thianpiriya, an agricultural strategist at ANZ in Singapore, who forecast imports at 63 million tonnes.

 

"If you look at the pace of imports so far, that is the kind of growth you see."

 

US government data show China has bought 16.4 million tonnes of US soy so far in the marketing year that began on September 1, 2012, 7.7 million tonnes of which has been shipped to the country, leaving 8.6 million tonnes on the books.

 

China's imports of soy could rise in the weeks ahead as the country temporarily halted the sale of state reserves to focus on stockpiling its domestic soy crop.