December 23, 2011


China's soy stockpiling may buoy market; but effects short-lived


China's soy stockpiling policy may stabilise the bottom prices, but it would have limited impact in boosting the market outlook for its failure to improve farmers' margins, analysts said


The government set the bottom price at RMB4,000 (US$631)/tonne for spot soy price and RMB4,200 (US$663)/tonne for futures prices. Currently, new soy prices in some regions of the northeast, the biggest soy production base in China, approaches RMB4,200/tonne.


Before the release of the policy, Heilongjiang province and other major soy producing areas suffered stagnant sales as farmers were hoarding, while risk-averse soy traders and processing companies were unwilling to purchase on large scale amid an uncertain outlook for the macro economy.


Industry insiders generally believe that the policy has taken a positive effect in buoying the soy market, especially in the main growing areas. A local official in Heilongjiang said that although the minimum purchase price was slightly lower than farmers' expectations, it was almost the same as the current spot purchase price and encouraged farmers to sell.


Soy processing companies also said that the floor purchase price provided a support for the soy market and helped improve trade. Currently, small and mid-sized soy crushers in Heilongjiang set their purchase prices at RMB3,960-4,040 (US$625-637)/tonne.


However, some crushers noted that the state stockpiling policy would not have a substantial effect on production and operation of soy processing companies because the country was still heavily dependent on soy imports. Furthermore, as oil yield from domestic soy is lower than from imported GM soy, qualified soy crushers tend to use imported soy to maximise profits.


Farmers generally say that the minimum purchase price is lower than their earlier expectations of RMB4,200-4,400 (US$663-694)/tonne given rising planting costs and decreasing planting profits this year.


In northeast China, soy mainly competes with corn for planting area. The survey of Heilongjiang growers showed that in 2011, profits from planting soy crops dropped 8.1% from last year while those from planting corn climbed 40% due to a 21% rise in prices.


Heilongjiang province, China's biggest soy production base which output accounts for 40% of the country's total, yielded 5.42 million tonnes of soy this year, down 7.5% from the preceding year, as some farmers increased their corn acreage driven by high corn prices.


The China National Grain and Oils Information Centre (CNGOIC) earlier predicted that the country's soy output would slump 10.5% on-year to 13.5 million tonnes in 2011.


China has steadily raised the minimum purchase price for soy from RMB3,700 (US$584)/tonne in 2008 to RMB3,740 (US$590)/tonne in 2009, RMB3,800 (US$600)/tonne in 2010 and RMB4,000 (US$631)/tonne in 2011. China's market purchase prices of soy have usually been higher than the state guaranteed prices.


Meanwhile, after the introduction of the policy on November 28, the most active September contracts on DCE were range-bound between RMB4,200-4,300 (US$663-678)/tonne and did not experience sharp volatility as the policy was within expectations.


Analyst said that although the state purchase price basically establishes the bottom for the soy market, it would have limited effect to boost prices and futures prices might remain in RMB4,200-4,500 (US$663-710)/tonne in the following months, held down by eased supply on the global market.

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