Sinograin announced it would be increasing reserves of domestic soybeans as the market continues to struggle with oversupply.
Reserve purchase prices were raised by 10 yuan per KG and are now 5550 yuan per ton in many areas.
The supply glut is likely to get worse. Sinograin needed to expand its stockpiling of domestic soybeans as most warehouses are already close to full and unable to buy more from farmers who are selling more actively now that temperatures are rising.
Even with warehouses close to full, farmers still have a large amount of stocks that they have been reluctant to sell because prices are down.
Many analysts note that China’s domestic soybean market is oversupplied and that there simply isn’t enough downstream demand for soybeans after production increased by 24% compared to last year.
Despite this oversupply, the government is still pushing for an increase in soybean production.
As a state-owned company, Sinograin is expected to work to implement the current policy guidance from the recently released No. 1 Central document which said that soybean production and planting should be expanded. In order to do this, Sinograin needs to buy soybeans from farmers and expand its stockpiling operations in order to ensure income for farmers and serve as a buyer if commercial demand is weak.
The increased government support rallied soybean prices during a time when farmers are making planting decisions and could support a further increase in soybean planting.
Food demand for soybeans in China has grown at an average rate of about 6% per year so there simply isn’t enough demand to match a 24% year on year increase in production. Even if soybean production is stable in 2023, this will still add to the oversupply.
But for now, expanding soybean production is the official government policy. Local governments and state-owned enterprises will work to increase soybean production even if it makes the over supply situation worse.