December 4, 2008

China government soy purchases may cause lower crop output in 2009


China's decision to encourage farmers to continue planting more crops by purchasing more soy will have the adverse effect if north-eastern crushers continue to suspend soy production, industry participants said Tuesday (Dec 4, 2008).


A combination of plunging global soy prices and the government's fixed-price purchases amid a bumper harvest in China has reversed normal market conditions, with local soy trading at a wide premium to overseas counterparts as crushers either suspend local purchases or opt for cheaper imports.


Most soy crushers in major north-eastern producing areas have suspended their production and stopped buying soy from local farmers, while some are purchasing the more competitively priced imports, industry participants said.


Imported soy RMB1,000 a tonne less than domestic non-GM soy. Usually, domestic soy has to be RMB200 per tonne cheaper than imports for soy processing plants in the north-east.


The government is expected to buy an additional 1.5 million tonnes of soy in the north-eastern region at RMB3,700 per tonne, two-thirds of it from Heilongjiang province, said Liu Zhaofu, the general manager of Longma Consultation, a Heilongjiang-based soy consultancy.


Soy cash prices in Heilongjiang ranged from RMB3,400 to RMB3,700 per tonne as of Tuesday (Dec 2, 2008). The government has already bought 1 million tonnes of soy from the province.


But even with the additional purchases, farmers will be left with surplus soy if processing plants don't enter into the market, said Liu.


Even north-eastern soybean crushers who are seeking imported soybeans are encountering difficulties, analysts said.


Transportation and other fees from Dalian port to north-eastern areas cost at least RMB200 per tonne, and crushers have to transport soy oil and soymeal to the southern major consumption areas, which puts them at a competitive disadvantage against crushers in coastal areas, said Tian Renli, the general manager of Heilongjiang Jiusan Oil and Fat Co., a major soy crusher in Heilongjiang province.


If closed processing plants don't resume production soon, farmers' planting interests will be hurt badly next year, he added.


An official at the China Soy Association said farmers in the northeast have had difficulty selling their soybeans this year as they vie for limited state purchases.


China has imported a total of 30.82 million tonnes of soy from January to October this year, up by 26 percent on year.


US$1 = RMB6.882 (Dec 4)

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