China March Commodity Review: Part 2

Soybeans

For most of the month, domestic soybean prices have been stable to slightly higher, supported by the ongoing state reserve purchasing program. On the surface, the state reserve purchasing program of soybeans—much like its cotton counterpart—has helped keep domestic prices artificially higher than imported beans and, most importantly, protected growers’ income, the sole objective of the government. The unintended consequences, however, have seen domestic crushers located in the northeastern part of the country, the heart of the soybean belt, temporarily shut down because of poor margins due to higher raw material costs combined with very slack demand for downstream products of soybean meal and oil. Some of the smaller owned crushers in Shandong and Guangdong province have also idled equipment until raw material costs move sharply lower. The chart below offers a quick look at price differences between domestic and imported soybeans at several key delivery points around the country.

While prices have remained firm since the start of 2009, traders expect domestic prices to begin moving lower in light of the announcement by Mr. Bao Kexin, General Manager of Sinograin, the government body in charge of reserve procurement, who expressed concern over the company’s inability to purchase the designated amounts for both corn and soybeans as a result of the strict moisture requirements. The reserve had an initially targeted a total of 6 million tons of soybeans and 40 million tons of corn for reserve purchases. However, by the end of February, purchases had only reached 3.5 million tons of soybeans and 27 million tons of corn. Recent reports indicate there are still plenty of soybeans stored on farms, particularly in the Heilongjiang province in the cities of Fuyuan, Raohe, Tongjiang, Baoqualning, Hongxingling and Jiansanjiang.

In other industry news, the state of China’s domestic soybean industry remains a source of concern for government officials on both the national and provincial stage. In Heilongjiang, one CPCC member, Mr. Sun Dongsheng, recently stated that imported BT soybeans beans had dramatically reduced growers’ incomes in the province, claiming farmers made an average of 1174.50 yuan/ha revenue in 2008 from 3234 yuan/ha in 2000. To remedy the situation, Mr. Sun suggests making plans for protecting domestic non-Bt soybean fields, the majority in China, by including them in a food emergency system. In addition, Mr. Sun advocates establishing an independent base for edible oil production as well as increasing the import taxes for all edible oil.

Some quick comments on the DCE’s soybean contract are probably warranted. Since a modest rise in late December and through the early part of 2009, prices have consistently traded within 100 to 200 yuan/ton price band.

One other note to mention is customs date for January through February soybean imports. For the two month time period, China imported 6.29 million tons of soybeans, a 15% increase over the previous period a year ago.