Analysis: China's Soybean Prices May Hit Record High in August
In the light of the soybean trend on the U.S. market, expectation for declining domestic output, and expiration of price capping policy, soybean prices on Chinese market are likely to rise and may even top the earlier high point of 4,744 yuan (US$733)/metric ton (tonne) around August.
However, as soybean inventory at ports stand at the high level of about 7 million tonnes and the government may also sell reserves to regulate the market, soybean prices may slip back in the fourth quarter, the usual marketing season for new soybeans.
-- Soybean stocks and exports of the United States to rise
The June to August period is a key period for soybean crops growth in the US. Weather conditions will play an important part in affecting the soybean output of the US, the biggest soybean producer in the world, and soybean prices usually tend to rise in that period.
The June supply/demand report released by the US Department of Agriculture shows that the soybean planting area in the United States is estimated to reach 76.6 million ha in crop year of 2011-12, lower than the 77.4 million ha in the preceding crop year.
The report also raised its estimate of US soybean stocks by the end of 2010-11 crop year, as well as its exports.
Analysts say that the report is negative to soybean prices to some extent. Weather and soybean demand from China will become two major factors to affect soybean prices on the Chicago Board of Trade (CBOT) in the third quarter.
-- China's soybean output to drop, price caps likely to expire in August
Meanwhile, soybean planting area in northeast China's Heilongjiang province, the country's largest soybean production base, has dropped significantly from previous years, as farmers replanted paddy rice and corn for higher profits. The expected decline in soybean output this year may lend support to prices when new soybeans come onto the market around October of this year.
Some media reports said that China would extend the price caps on edible oil to August 15 to stabilize prices ahead of the holiday consumption peak during the Mid-Autumn Festival (Sept.10-12).
To combat inflation, the Chinese government introduced price controls on edible oil in November of last year and extended them in April, informally requiring major grain processing enterprises, including Wilmar International, COFCO, and Chinatex to limit price rises.
If the price caps expire in the middle of August, cooking oil prices are expected to rebound then, which may also drive up soybean prices.
-- China's soybean imports to rise slightly
The state-backed think-tank the China National Grain and Oils Information Center (CNGOIC) predicted that the country's soybean imports would reach 53 million tonnes in the crop year 2010-11 that began from October, compared with 50.3 million tonnes in the 2009-10 crop year.
China has launched 13 batches of state soybean reserves put under the hammer since December of last year. However, due to unappealing floor prices, only 11,100 tonnes of about 3.86 million tonnes of reserve soybeans were sold at these auctions.
The failures not only reflect lackluster demand on the spot market but also the government's determination to stabilize prices as it held the floor prices unchanged at these auctions.
(XIC)
