Soybean Support Problems

The weekly report on the soybean market from eastern Heilongjiang reveals that trade in domestic soybeans is slowing even more. The fall in international soybean prices and soft domestic demand pushed domestic prices down by about 0.02 yuan/500g to about 1.62-1.64 yuan/500g (3240-3280 yuan/mt) for farm sale prices. The sale price for processors or traders is 1.65-1.67 yuan/500g. The support price for government reserve purchases is 1.85-1.87 yuan. As market prices fall, the gap between the actual market price and the support price widens, and it becomes less attractive to buy at the support price.

So, it's not surprising that farmers are having trouble selling their beans. The report says that not many beans are being bought at the support price. Many of the designated purchasers don't have enough storage capacity--that may be true since usually no one holds large soybean reserves. It is said that some of the reserve beans will be shipped south where there is some excess storage capacity. It is also reported that farmers are not able to dry their soybeans to meet the standards. There is a history of this--in past instances where China tried to support prices grain stations often found excuses to reject farmers' grain on "quality" issues or paid them with IOUs.

Another article says that some farmers are waiting to sell their beans in the hope they can get the government price. Others need to sell to generate cash for fertilizer and seed for spring planting. The decline in futures prices and domestic soymeal prices induced some buyers to cancel their purchase contracts for imported soybeans. Over the weekend some crushers in production regions cut their procurement price offers by .04-.10 yuan/kg. Not much trade in beans. Purchases for government reserves have become the main marketing channel for domestic Chinese soybeans.

Local meteorological bureaus in Heilongjiang are starting to warn about possible drought conditions in the province as spring draws near(er). Thirty counties in the western and south-central parts of Heilongjiang have dry soil conditions.

The market is anticipating an increase in soybean planting this spring based on the policy support for soybean prices. However, the report says there is an oversupply of soybeans, with 2.9 mmt expected to arrive at Chinese ports in February and 3.15 mmt in March. Is the support price sending producers the "right" signals?