The professors haven't had a chance to publish their erudite articles explaining the causes of this year's food price spike yet, and already world commodity prices are dropping like a rock--faster than anyone anticipated. So are ocean shipping rates. The whole food price landscape is changing. Where a few months ago Chinese authorities were desperately trying to protect consumers from “food inflation,” now they are desperately trying to support prices for farmers while world prices are dropping.
The China National Grain and Oils Information Center (CNGOIC) weekly report on edible oils markets describes the soybean situation. In coastal regions where most soybeans are imported, prices have fallen from about 3800 yuan/mt to 3150 yuan/mt over the past 4 weeks. Soy oil and meal prices are also weakening. The landed cost of soybeans arriving in November (including duty) is expected to be 3100 yuan, which is lower than the price of soymeal.
Chinese authorities have announced that they plan to buy 1.5 million metric tons of soybeans for central reserves at a support price of 3700 yuan/mt. Domestic market prices in northeastern provinces rose on this news, but were still much lower, at 3200-3500 yuan. (Domestic beans are mainly produced and crushed in the northeastern provinces. Imported beans are crushed in foreign-invested plants along the coast.)
The problem is, how does China support soybean prices at 3700 yuan when imported beans are available at 3100 yuan? Declining oil and meal prices will make it hard for domestic crushers to offer high prices for domestic beans. U.S. news reports indicate brisk Chinese demand for U.S. soybeans given the rising Chinese prices.
Chinese authorities are no doubt looking for ways to keep out imported beans in order to support prices. The temporary cut in soybean duty to 1% expired this month and is now at 3%. I assume the 13% VAT is also being assessed. There are rumors that China is considering raising its soybean tariff above its bound rate, which would be a rogue move.
In other news, a Chinese official announced plans to consolidate soybean crushing capacity in the hands of Chinese companies. The industry utilizes less than 50% of its 90 mmt crushing capacity. Many (domestic) crushers are idle much of the time. The government plans to close small crushers or have them be acquired by Chinese companies. Foreign-owned crushing capacity will be capped—no expansions or acquisitions. Resentment of foreign dominance of the soybean crushing industry has been stewing for several years.