Thursday, April 22, 2010

Soy Oil Limits: Temporary "Fine Tuning"

An April 15 article in the newspaper of the Peoples Consultative Committee offers a little more insight about what's going on behind the scenes on the new limits on Argentine soy oil imports.

The article gives opinions of domestic soybean analysts who conclude that the limits on imported Argentine soy oil are a temporary trade measure to raise domestic soy oil and soybean prices to encourage farmers to plant more soybeans this spring.

The article begins, "MOC limits on soybean oil imports give the domestic soybean industry a respite from the impact of imports." It reports that many domestic soybean processors that have been idle are restarting operations, and futures prices of soy oil and soybeans have risen since the measures were implemented.

As reported previously here, the article says the Ministry of Foreign Trade and Commerce’s China Food and Native Produce Import-Export Association held a “2010 soy oil import enterprise conference” on March 31 where the Commerce Ministry and AQSIQ representatives said, licenses for soy oil imports from Argentina would be granted through a unified national system instead of the former provincial commerce organizations and strict quarantine and inspection on soy oil from Argentina would be implemented.

Analysts agree that limits on soy oil imports can't have a long-term impact since imported oil is such a small share of the total oil supply. (However, the vice director of the Heilongjiang soybean association hopes that the controls could be expanded to oil from the U.S. and Brazil.)

They also agree that it is a short-term measure. Here's what the Heilongjiang association official said: "The domestic fats and oils situation has been especially weak. In the past two years, the government bought up soybeans and rapeseed, and they have not been able to sell them off, so there is relatively large pressure. This year's soybeans are about to be sown, and it looks like area will decline quite a bit since farmers are more eager to plant corn which is more profitable. If soy oil prices have a long period of low prices, it will undoubtedly have a big effect on soybeans."

The article then speculates, "As a temporary measure, the limit on soybean imports can eventually be abolished. Limits on rapeseed imports can also be loosened."

The Heilongjiang official thinks that, "The limits on soy oil imports relieve some pressure on oil processors and soy bean supply, but the good news that it has held the industry back from the brink of collapse. But it can’t solve the problems of domestic soybeans since domestic soybean processing enterprises want to use imported genetically modified beans with high oil extraction rates." He also thinks the subsidy system needs "adjustment."

"Controlling soy oil imports is a temporary measure for fine-tuning,” concluded the Heilongjiang official.

But imported soybeans account for the biggest share of supply and he opines, "Limits on imported soybeans are the key to success in the battle for soybeans." However, he and others interviewed agree that it's unrealistic to limit soybean imports since the volume is so large. Domestic production is only about 10 million metric tons and about half of those are used for food processing, not oil crushing. In comparison, imports of soybeans were 42 mmt last year.

The article goes on to regurgitate material about the NDRC soybean industry plan that was handed in to the State Council last month.

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