Brokers query hopes for Chinese corn, soy imports

Investors voiced concerns that benchmark estimates for Chinese crop imports may be too optimistic amid talk that the country's soybean imports, which account for some 60% of world trade, may fall heavily this summer.

The US Department of Agriculture surprised many investors by on Wednesday, in its flagship monthly benchmark Wasde crop report, leaving its forecasts for China's corn and soybean imports in 2013-14 (to the end of August) unchanged, at 5.0m tonnes and 69.0m tonnes respectively.

The estimate come amid growing expectations that China's appetite for purchase of both crops is waning, with the government encouraging users to turn to domestic corn supplies boosted by a record 218m-tonne harvest last year, while falling processing profits have cut demand for soybeans.

Chinese soybean crush margins, which topped 150 remninbi a tonne last autumn, have fallen to a negative 50 remninbi a tonne or so, according to Morgan Stanley.

'Increasingly long shot'

Indeed, China's imports may fall below 15m tonnes in the July-to-September quarter, which would represent a drop of at least 18% year on year, according to Reuters, which added that a squeeze by banks on credit was already fuelling a wave of defaults on existing orders.

Although data on Thursday showed healthy Chinese imports of 4.62m tonnes last month, buyers have reportedly cancelled an estimated 500,000-600,000 tonnes of orders of South American soybeans for shipment between March and May.

Against this backdrop - as Chinese processors feel in particular the pinch from the impact of bird flu outbreaks in reducing demand for chicken, and squeezing the domestic poultry industry many investors had expected a cut on Wednesday to the USDA's 69.0m-tonne soybean import estimate.

'Too high?'

"The market outlook was nearer 67.0m tonnes," Kim Rugel at Benson Quinn Commodities said.

CHS Hedging questioned whether the USDA estimate was "too high".

A trader at a European commodities house told "The Chinese are good at talking the market down. But it looks an increasingly long shot that 69m tonnes will be reached.)

And at Chicago broker RJ O'Brien, Richard Feltes said that the talk on slowing Chinese imports, and order cancellations, was "reinforcing the view that the USDA is overstating 2013-14 Chinese soybean imports by 2m-3m tonnes."

Corn rejections

In corn, the USDA's decision to stick by its estimate for Chinese imports of 5.0m tonnes defied a caution from its own office in Beijing that a 1.0m-tonne downgrade was in order "due to biotech-related trade disruptions".

Since November, China has rejected more than 900,000 tonnes of US corn over claims of contamination with MIR162, a Syngenta genetically modified variety as yet unapproved by Beijing, a factor which Cargill this week blamed in part for a sharp drop in quarterly profits.

Furthermore, China's government "is encouraging end users to purchase domestic corn over cheaper imports" by subsidising transport from the country's main north eastern production region.

Broker questions

An upgrade in the Wasde of 3.2m tonnes (125m bushels) to 44.5m tonnes (1.75bn bushels), in the USDA's estimate for US corn exports was "questionable" given that it was "assuming unshipped US corn export sales to China will be executed", RJ O'Brien's Mr Feltes said.

Of the 17.95m tonnes of orders by importers for US corn in 2013-14 yet to be shipped, 1.10m tonnes are from Chinese buyers, a number behind only outstanding purchases by Mexico, Japan and Egypt.

Benson Quinn Commodities said: "Some might also argue with the steep increase in [the Wasde estimate for corn] exports given the outstanding sales that are on the books with China that don't look like they will be executed upon in their entirety."

And CHS Hedging said questioned whether the USDA's estimate reflected an expectation that the Syngenta's corn variety at the centre of the rejections may be about to be approved by Chinese officials.

At broker Country Futures, Darrell Holaday highlighted the competition for US corn shipments, saying that "it is a little hard to believe that the US will reach the USDA export number today of 1.75bn bushels, when USDA is projecting a 72m-tonne Brazilian corn crop and a 24m-tonne Argentine corn production number".

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