Monday, February 28, 2011

More Soy Crushing Capacity

The National Grain and Oils Information Center estimated that 18 million metric tons of new soybean crushing capacity may be added in 2011. The average annual increase in capacity since 2005 was 5 mmt, so this year's anticipated increase is unusually large.

Annual capacity was already estimated at 95 mmt at the end of 2010. There are 140 plants with daily capacity of 500 mt or more, including 110 with daily capacity of 1000 mt.

The report attributes the increase to the effects of China's fiscal stimulus that began in 2008, increasing demand for edible oils and feeds. According to unofficial statistics there are over 20 new large crushing projects planned for 2011 with daily capacity of 60,000 mt.

The report doesn't mention the strategy of handing out loans to domestic vegetable oil processors to help them compete with the multinationals. As in most other industry there is huge excess capacity in processing from cheap credit, which leads to intense competition to procure raw materials and rising prices. At the other end, the flood of finished products creates competition to sell them, driving down prices and squeezing margins. Commodity prices rise; finished product prices fall.

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