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China's massive soy imports to flow into 2010

Published on 24 November, 2009, Last updated at 23:06 GMT

- China imports stay strong, helped by record U.S. harvest
- Subsidies to crushers narrow the price gap with imports
- Soymeal demand picks up on pig feed, cottonseed meal

China will retain its huge appetite for soy imports next year, and shipments may even eclipse this year's record, thanks to Beijing's pledge to keep shoring up local prices and a pick-up in soymeal demand. Rising imports are already evident as the world's biggest soy importer has taken advantage of a record U.S. harvest to book 15.84 million tonnes of new U.S. soy, nearly twice as much as the 8.28 million tonnes booked by this point in 2008, U.S. Department of Agriculture figures show.

The total is likely to be even bigger, at 18.36 million tonnes, traders calculated, assuming 70 percent of 3.603 million tonnes going to unknown destinations was also booked by China.

"China's imports are growing not steadily, but forcefully. We will see large U.S. imports flowing in in coming months," said Liang Yong, an analyst with China Galaxy Futures Co. Ltd.

"Strong Chinese imports would still be a factor for speculation on the Chicago market."

China's active purchases have already driven up Chicago Board of Trade prices to a 2-A½ month high on Thursday, and China's demand helped lift U.S. soy export sales last week to their highest in seven weeks.

Beijing tried to put the brakes on this year's surge of imports by offering subsidies to crushing plants in China's northeast to use local beans rather than imports. The offer will be extended for the new harvest, trading sources have said.

But the offer was too late to halt a wave of cheap cargoes from the world's largest exporter, though a few buyers in northern China could find it makes the difference between the domestic crop and the new South American crop if dry weather there drives up Chicago prices, crusher officials said.

"The policy will cause no interruption in U.S. exports because domestic buyers have almost completed U.S. purchases and prices for later months of South American cargoes are much lower," said one trader with a major state-owned trading house.

Chinese buyers have also booked more than 6 million tonnes of South American soy. They were still looking for U.S. supplies for January and February shipment and many could shift to the cheaper South American crop for shipments after March, traders said.

Traders and analysts expect China's imports to rise to more than 3.5 million tonnes, or even 4 million tonnes, each month from November to February.

"But the price gap between imports and domestic soy this year is not as big as last year," said one manager with a major crusher in Heilongjiang, the country's largest soy area.

"It could leave buyers with a difficult choice between imports and the domestic crop if, later on, weather drives up Chicago prices."

Last year's falling Chicago prices at one point made imports as much as 1,000 yuan ($146.5) per tonne cheaper than domestic prices after Beijing launched its stockpiling programme.

But given China's smaller harvest this year and lower quality due to bad weather, traders expect its use of the domestic crop for crushing into soymeal and soyoil will be limited only to crushers in inland areas in the northeast.


China's National Grain and Oils Information Center estimated that soy imports in the marketing year ending September 2010 would fall to 38.5 million tonnes, 6 percent lower than a record 41.1 million over the previous year.

The 41.1 million figure was exceptional as the government was also amassing its own reserves of imported soybeans, which is not expected to happen this year because reserves are plentiful.

But the first trader expected imports next year would be higher than 41 million tonnes, partly driven by better demand.

"We see next year's imports could be even higher. Demand has turned much better than last year," said the trader.

China's feed production has recovered since the second half of the year due to steady growth in its pig population and Beijing's stimulus spending, which has spurred meat consumption and created jobs for millions of immigrant farmers.

"Feed production is recovering and some large feed mills have seen very good growth," said Sun Zhiqiang, an official with the China Feed Industry Association. The increase was reflected in the growth of pig and poultry feed, he said.

Production at major feed mills is up more than 10 percent over the fourth quarter of last year, after China's overall feed production fell 2 percent in the first three quarters of 2009.

Many large state pig farms have been set up, increasing pig stocks and forcing out individual farmers and small rivals.

Pig herd sizes have grown since June, rising by 5 percent to more than 469 million head by end-October, official figures show.

A lower domestic harvest of peanuts and cotton also saw soymeal's market share expand to fill the gap, traders said.

CNGOIC estimated China's soymeal demand to increase 5 percent to 34.7 million tonnes in 2009/10. China's production of cottonseed and peanut meal could fall more than 10 percent each, reducing supply by nearly 1 million tonnes from a year earlier.

Tight fishmeal supplies, constricted by falling imports, could also lead mills to blend in more soymeal. ($1=6.828 Yuan)

By Niu Shuping and Tom Miles [Reuters]


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