December 2, 2008

China to launch new round of grain purchase for reserves


China will purchase 1.5 million tonnes of soy in north-eastern areas, at RMB0.925 per kilogramme and 5 million tonnes of corn for state reserves.


China is expected to add grain purchase for reserve and offer subsidies to soy processing companies in a bid to stabilize planting area of farm products.


Agricultural Development Bank of China (ADBC), one of China's three policy banks, granted RMB14 billion to China Grain Reserves Corporation to purchase soy for state reserve. The funds can afford 4 million tonnes of soy in accordance with the price of RMB0.925 per kilogramme.


As China had purchased 1.5 million tonnes in October, the new round purchase would reach 2.5 million tonnes, which hasn't been confirmed by authoritative source.


The high expectation for soy purchases has shored up soy futures in Dalian Commodity Exchange by several days running.


To stop soybean price from diving in north-eastern area, China had purchased 1.5 million tonnes of soy for state reserve at RMB0.925 per kilogramme in October, with 10 million tonnes in Heilongjiang, 0.06 million tonnes in Liaoning, 0.21 million tonnes in Jilin, and 0.23 million tonnes in Inner Mongolia Autonomous Region.


But the move only boosted soy price for a short time, which started to fall back after two weeks and has dived to the state purchase price of RMB0.925 per kilogramme in Heilongjiang and other localities.


Many fat processing enterprises have halted purchasing domestic soy due to lower price of imported transgenic soy.


According to an analyst with Wanda Futures, as the price of imported soybean is RMB300-400 per tonne lower than that of domestic soy, more imported soy has rushed in Chinese market and may take up 70 to 80 percent shares from the current 60 percent if China fails to launch efficient measures.


Some experts said China was likely to roll out support policies for domestic soybean processing companies in a way to offer subsidies to make up the margin between sales price and state purchase price.


China Oil & Foodstuffs Corporation (COFCO) and Heilongjiang Jiusan Oil & Fat Co., Ltd. (JOFC) are promising to enjoy the subsidies, predicated experts.


The state purchase of rice and wheat will also be increased to stabilize prices of farm products and guarantee their planting areas for 2009.


China's soy output is predicated to reach 16.5 million tonnes this year, while the domestic consumption takes up 10 million tonnes, and state purchase for reserve may accumulate to 4 million tonnes.


That means only 2.5 million tonnes of soy is expected to be left this year, and thus the soy supply is basically balanced. To reach such balance, China shall impose further control on soy imports.


US$1= RMB6.853 (Dec 2)

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