Tuesday, November 29, 2011

Soybean Support Price

Chinese authorities have announced a "provisional" minimum price for purchasing soybeans for government reserves. The price is 2 yuan per jin, or 4000 yuan per metric ton and applies to 3rd-grade domestic soybeans harvested in 2011 and purchased in Inner Mongolia and the three northeastern provinces (Heilongjiang, Jilin and Liaoning).

The China Oils Net explains that the provisional price has been raised each of the last three years. The price set in late 2008 was 3700 yuan per metric ton. According to the China oils net, this price didn't give farmers enough profit so they were not enthusiastic about selling. However, the dim sums blog recalls that the problem in 2008 was that no one wanted to buy Chinese soybeans at support prices since imported soybeans were cheaper.

The provisional support price was raised to 1.87 yuan/jin or 3740 yuan per metric ton beginning November 23, 2009. In 2010 the price was raised to 3800 yuan, but farmers didn't want to sell at that price. The market price was in the 3900-4000 yuan/mt range at that time.

The volume of domestic soybeans coming on the market is down this year since production has fallen. According to reports, the quality of soybeans is down this year. The oil content is only 14% in some areas.

With a limited supply the market price is up, so the support price may not have much effect. Private purchasers are setting prices of 1.98-2.00 yuan/jin, close to the support price.

The China Oils Net thinks the outlook for domestic soybean production next year is not favorable. Profits from soybeans are still not as good as those from competing crops. Moreover, at the current market price, soybeans from Heilongjiang Province do not have a price advantage versus imported soybeans by the time they are transported to coastal regions. Although policies have tried to raise yields and expand plantings on non-GMO soybeans, the China Oils Net writer thinks the market is still tilted in favor of imported soybeans due to their price advantage.

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