State Reserves Still Buying Soybeans

The biggest news for China’s soy complex is the drama unfolding in the northeastern province of Heilongjiang. The reserve’s procurement of soybeans achieved its objective of nudging prices higher while stabilizing farmers’ incomes. It’s estimated the reserves is sitting on more than 4 million tons of beans. And while this has many traders fretting over an “impending” release to the market, we believe the bigger issue is solving the problem of Heilongjiang farmers and the undeliverable supply to the state reserves. Granted, a majority of farmers in Heilongjiang were quite happy with the reserve procurement program. However, some weren’t due to the fact their beans did not meet the reserve’s quality specs. What has happened is that farmers in Heilongjiang are now storing the bulk of the previous marketing year’s output. This situation comes at a particularly tough time since most farmers are preparing to enter their fields and theoretically should have little to no on farm storage. The situation would not be as dire if the crushing capacity located in the Heilongjiang were up and running. As it stands, most of it is down and will remain so due to poor margins. Those crushers still operating are beginning to drop their prices due to the increased interest in farmer selling. It’s an extremely tough situation for the province’s soybean farmers who have been encouraged in recent years to expand their soybean acreage to help alleviate the food crisis and dependence on imported beans.