China’s soy imports to dwindle as price rally spooks buyers

(Reuters) – China’s unrelenting imports of soybean could hit a wall soon as oilseed processors in the world’s top buyer cut purchases, with margins being eroded by a drought-driven rally in the United States and domestic price curbs urged by Beijing.

Soybean imports in the fourth quarter could drop by about a fifth, according to trade estimates, potentially denting a record-setting rally in benchmark Chicago prices, which have climbed 25 percent since June.

Top processors in China, which imports 60 percent of the world’s traded soybeans, are already making plans to reduce production as the worst drought in 56 years across the U.S. grain belt curbs yields.

The spread between U.S. soybeans for November shipment and rival Brazilian cargoes for March arrival has spiked to almost $100 a tonne, the highest since 2008, on prospects of lower supplies from the United States.

“You have a situation where the U.S. market is telling buyers to stay away from the market or prices will keep going up and up,” said a trading manager at an international commodities company in Singapore that runs processing facilities in China.

“You can see that in the spread between U.S. and South American beans.”

China’s imports are likely to be capped at around 12 million tonnes between October and December, down from about 15 million shipped a year ago, three leading soybean traders estimated.

Traders’ fears that tough times lie ahead for China’s oilseed industry were reinforced on Wednesday, when shares of top oilseed supplier and processor Wilmar International fell 10 percent to their lowest in more than three years, prompted by dismal earnings.

Wilmar’s second quarter net profit slumped 70 percent to $117.1 million from a year earlier, far below an average forecast of S$328 million in a poll by five analysts.

HIGH BEAN PRICES, DOMESTIC OVERSUPPLY

Besides input costs being pushed up by an all-time high in bean prices, China’s livestock industry must grapple with pork prices being pressured by domestic oversupply.

“The cost of production has shot up but domestic pork prices are much lower because it is their peak production period,” said another Singapore-based trader, who declined to be identified as he was not authorised to speak to the media.

“Crushing margins are in negative territory and there is no one willing to pay higher prices for products.”

To hold down food prices, China has asked producers to avoid raising the price of edible oil unless absolutely necessary, even though there are no controls on cooking oil prices.

Soybeans are crushed to make oil used in cooking, and meal, a key ingredient of feed for pigs, fish and chickens.

The market will be relieved to see a slowdown in imports by China, which has been buying beans at a breakneck pace.

Soybean imports rose 4.4 percent in July from a month earlier to a 25-month high of 5.87 million tonnes as crushers increased imports in peak consumption months. In the first half of the year, China bought around 29 million tonnes of soybeans, up 22.5 percent from a year ago.

The U.S. Department of Agriculture has cut its estimate for China’s soybean imports in the year to October 2013 to 59.5 million tonnes from a record 61 million forecast in July.

China’s imports have already started slowing, some analysts said. “High prices absolutely curb demand,” said Tu Xuan, an analyst with consultancy Shanghai JC Intelligence.

“The expectation for imports in August and September is around 4.5 million to 4.8 million tonnes a month as volumes decline.”

Global soybean prices are expected to stay near the record at least until the South American crop enters the market in March, analysts said, which could mean China continues to cap imports well into 2013. (Additional reporting by Sabrina Mao and Zheng Xiaolu in BEIJING; Editing by Clarence Fernandez)