Tuesday, July 30, 2013

End of Soybean Price Support Policy Rumored

According to Futures Daily, industry rumors say that Chinese authorities may terminate their soybean price support by the end of 2013. The soybean price support, called a "temporary reserve", was first introduced in 2008 with a floor price of 1.85 yuan/500g and was raised each year to reach 2.3 yuan/500g for the 2012/13 market year. The program only operates in China's northeastern provinces.

The policy is intended to increase returns to producers and encourage them to grow soybeans. However, it also makes domestic soybeans more expensive than imported soybeans. According to a soybean trader quoted in the Futures Daily article, the cost of domestic soybeans has been about 4200 yuan per metric ton, but processors using beans they have imported have a cost of less than 4000 yuan. He says soymeal and oil from coastal processors using imported soybeans is now being sold in domestic soybean-producing areas like Heilongjiang Province. Consequently, he says domestic soybean processors have been mostly idle.

Despite the policy's intent to encourage farmers to grown soybeans, production has been falling. The China National Grain and Oils Information Center estimates that Chinese soybean area declined 14 percent in 2012. CNGOIC estimates that 2012 soybean output was 12.8 million metric tons, its lowest level since 1991.

The article speculates that a "target price" subsidy will replace the "temporary reserve" program. Strategic plans for long-term food security and grain production formulated in 2008 and 2009 called for exploring a target price program. This has been rumored since last year and there were reports that a trial program would begin for soybeans this year.

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