December 15, 2003



Analysts Caution Against Optimism in China-US Soybean Trade


Analysts are wary of the optimist stance that China will buy U.S. soybeans when the Chinese trade team visits Chicago this week.


Grains analyst Allen Dever of Doane Agricultural Services said, "They won't telegraph the market they are going to buy 1.5 million tons of beans on one day. They might sign a commitment saying they would buy X amount of beans in 2004."


The timing of the purchase is important to traders because the United States soy export window begins to close from March when cheaper supplies from Brazil and Argentina flood the world market. The season turns to the U.S. again only in September.


"They might buy before they come or after they come but they won't be buying when they come," said grains analyst Dale Gustafson, alluding to how the purchase of 1.5 million tons would rally prices much to the detriment of the buyers.


"However, if they say 'we'll buy 1.5 million tons in 2004', we are all going to be disappointed because we are expecting them to buy a lot more than 1.5 million tons in the next 12 months," Gustafson added.


In Washington, Agriculture Secretary Ann Veneman refused to comment on the possibility of the visiting Chinese team making a large purchase of U.S. soybeans next week.


Expectations of further Chinese purchases come amid a thaw in Beijing-Washington tensions following this week's visit of Chinese Premier Wen Jiabao to the United States.


A senior Chinese industry official said on Friday that the trade delegation comprising some 60 members visiting Chicago next week would buy about 1.5 million tons of soybeans. They will be in Chicago on December 17-18.


CBOT soy prices recently hit six-year highs, crossing the psychologically important $8.00-per-bushel mark on a combination of a short U.S. crop and heavy buying by China.


China, the top market for U.S. soybeans, however has markedly reduced purchases from the United States since its trade row with Washington broke out last month after the Bush administration slapped import quotas on Chinese textiles.


Government data showed that China has bought 7.35 million tons of U.S. soybeans since the current marketing year began September 1, and there are expectations it could buy 8 million to 10 million tons by the time the season is over.


But purchases last week totaled a mere 72,400 tons, which included 55,000 tons that had previously been listed as being sold to unspecified buyers by the U.S. Agriculture Department.


The slowdown in purchases could be due to their already hefty purchases, said Dever. "It's a natural evolution. They have purchased significant amounts already," he added.


An exporter said Chinese soy processors last week bought six cargoes of "old crop" soybeans from Brazil and Argentina, the world's second and third largest growers, respectively, for January shipment -- a period when U.S. supplies are still competitive.


"They bought six cargoes from Brazil last week for January shipment, and historically that should have come from the U.S.," said the exporter, who declined to be identified.


"This year's crop weather is good in Brazil, farmers there still have some old crop to sell, and they are selling it because prices are high now," the exporter added.


Another exporter said he was expecting some "ceremonial" signing of purchase contracts next week. "They'll say they are buying beans, but it's likely business already in the books."