China’s state-owned grain stockpiler Sinograin has planned to auction an addition of 2 million tons of national soybean reserves to the domestic market this year as sales volume at previous auctions lagged behind expectations.
According to three market contacts at crushers and in China, the stockpiler is looking to add 2 million tons to its existing intended volume of four million tons. The additional volume is expected to be auctioned in June this year.
However, there has been no official announcement from the state-owned company.
The additional auctions are intended to provide more soybean supply to domestic crushers as international prices are hovering at an elevated level and crush margins are still largely negative, contacts informed Sitonia Consulting.
Import prices for Brazilian and US soybeans are still evaluated at $730-750/ton based on Sitonia Consulting calculations, which are significantly above crushers’ revenue.
Crush margins for spot shipments from both countries to China are calculated at roughly -$10/ton.
Furthermore, auctions of the previously targeted volume of 4 million tons have failed to attract enough demand due to logistical issues.
The current round of auctions started in mid-March this year and has been offered in tranches of 500,000 tons per week. However, each offer only sold around 20-30% per week, meaning that just 1 million tons of the intended amount can eventually be supplied to the market by the end of this month.
“The quality is no issue. It is just that procurement is difficult to control,” one trader at an international crusher told Sitonia Consulting.
Due to current Covid restrictions in various areas in China, time for the delivery of auctioned soybean reserves from the storage site to crushers take more than a month on average. It could take longer sometimes if local restrictions tighten, and transportations are forced to suspend.
This was a major factor behind the current suspension of wheat reserve auctions last month, which was due to a large backlog of deliveries.
Nevertheless, price is another key element that has limited demand with crushers saying it need to be capped lower to attract more buying interest.
“The actual impact on crushers is not much,” said another contact at a major trading house, regarding the supply from auctions in comparison with crushers’ monthly import volume.