China crushers hit by low demand
Food value chain - Soy beans Soybean Food Chain Example
The increase of food prices affects almost every
'erop under the sun' - wheat, corn, oil seeds - they
are all at or near a peak in nominal terms.
To explain the effects of this price spiral on differ
ent parties, we have taken the example of a soy
bean value chain. Rabobank is a major player in the
soybean chain. Worldwide, the bank finances busi-
nesses that operate in this chain, from producers
to the manufacturing industry. The active parties in
this particular example are all Food Agri clients of
Rabobank in different regions. They all experience
the different effects of the price spiral as described
in the central article.
Soybean oil is widely used oil and is commonly
called 'edible oil'. Soybean oil is very popular
because it is relative inexpensive, healthy and has a
high melting point for which reason it is often used
as cooking oil. Soybeans are not only used in food/
feed products but is also used as renewable raw
material to produce a variety of non-food prod
ucts including bio diesel, inks, plasticizers, crayons,
paints and soy candles.
Rotterdam
China
Shanghai
Hong Kong
Brazil
Clients of Rabobank
Rural Banking Brazil
Clients of Rabobank
Food Agri Brazil
Nidera Handelscompagnie BV
Rotterdam
For instance Nidera
Handelscompagnie BV
Rotterdam, which is featured in
this article. This is a cliënt of
Rabobank Trade Commodity
Finance (TCF) Agri in Europe.
Crusher/Refiner China f.e. Cofco
For instance COFCO Ltd in China,
which is featured in this article.
COFCO Ltd is a cliënt of Rabobank
Trade Commodity Finance Agri in
Hong Kong/Shanghai
The value chain we illustrate is following the
transformation process of soybeans to soybean oil
and meal in Brazil to its final destination China for
crushing soybeans and refïning to soybean oil.
The market in China is currently pretty weak for
soy meal and oil and the processing industry is
suffering. The high price of soy beans is a major
factor, but it is not the only one, according
to Liu Meng Ze, Deputy General Manager,
Oils Seeds Processing Division of COFCO Ltd,
China's largest oils and food importer and
exporter and leading food manufacturen
"As a processor of soy beans, our main concern
is the crush margin, rather than the price of
raw materials or end-products. It is the low
demand and low prices for end-products that
is really squeezing the crushers in China. And
it is difficult to say where the market is head-
ing right now", he adds. According to recent
commodities reports, it looks like supply and
demand are quite tight, but that is based on
the fact that a high proportion of crops like soy
beans or other food commodities, like corn,
are supposed to be used for the production of
bio-energy. But given the high price of foods
that this is causing and the attention this has
attracted from a number of governments, it
is hard to imagine that these policies and the
demand for the use of food commodities for
bio-energy will continue. And if that demand
falls away, prices for soy beans and other com
modities will drop, Liu says.
Crops
In China at least, the government is trying very
hard to maintain stable prices and the country
has large grain stocks. If prices continue to rise,
the government is likely to release some of
its stockpile in an attempt to cap prices. "But
the market is never predictable, so it's hard to
say where it will go. But there is little sign of
any real piek up in demand for soy meal or oil
products."
Speaking more generally, Liu says that while
there are bound to be some people who
benefit from high commodity prices, high
prices do little to benefit producers, processors
or end-users in the long-term. "So I doubt that
this upward price spiral will continue. On the
other hand, if crude oil prices continue to rise,
this could increase the demand for bio-fuels
and of course that will boost food commodity
prices. And that will encourage growers to in
crease the acreage devoted to these crops. But
as l've said, this market is very hard to predict."
ISSUE 16 JUNE 2008 THE WORD 19
