The government is getting set to sell 800,000 tons of soybeans from the state reserve to meet the market shortfall and stabilize prices, the State Development Reform Commission - the top government planner - said in an announcement.
Rumours concerning the possible move have been flying around for weeks. But it was the government's announcement that sapped the domestic soybean futures market across the board in Dalian yesterday, with the most active November contract falling 17 yuan to 2,411 yuan (US$291.8) per ton.
Traders are concerned that the additional supply, though small, may further weigh down market prices with imports piling up in coastal areas.
Traders also said they are pondering whether the move may signal a possible move by the government to curtail rampant soybean imports in the near future. The reserve sale could be regarded as pre-emptive action to offset any possible decline in future imports, they said.
Soybean imports surged 168.5 per cent in the first five months of this year to 7.66 million tons, stinging domestic farmers in the process.
An insider, involved in lobbying for the policy, rejected suggestions that the reserve sale will be followed up with curbs on imports.
"It is a normal seasonal shift, which allows the government to sell out the old stock, and buy back new in the harvest season," the insider insisted.
She said sales of State reserves will help feed the market in Northeast China, which is the major domestic soybean production base.
Supplies in the area have been somewhat disrupted as soybean crushers have increased the production of soybean meal. Production surged as the government reduced the transportation fee for soybean meal sold outside the area by 30-40 per cent since January.
"The sales are to balance the geological disparity," she said, referring to the oversupply in markets in coastal areas.
She said the government is likely to buy back the reserve in September, thereby underpinning the price at that stage.
An official with a foreign soybean trading institution, who preferred not to be identified, said the market gloom will be short-lived as the amount of the reserve sale is too small to crush the market.
The 800,000 tons could only satisfy market demand for half a month.
(China Daily July 15, 2003)
