Beijing resumed buying soybean and soyoil for newly created government reserves last week to help secure food supplies and, eventually, to tame inflation, traders and industry officials said on Tuesday.

 

The sources said government reserve agencies had bought up to 50,000 tonnes of soyoil over the past week, adding to stockpiles that it launched in the latter half of last year as Beijing grows increasingly reliant on imported oilseeds.

 

Some sources said it planned to buy about 200,000 tonnes in the current round, although exact tonnages could not be determined. The reserve is now believed to hold less than 1 million tonnes, a fraction of its 25 million tonne per year consumption of vegetable oils.

 

"They realised one mistake: without sufficient stocks, you can't control the market," said a trader at an international house in Shanghai. "China definitely needs to go long these physical grains, instead of holding so many US dollars."

 

On Tuesday, CBOT soy futures and Malaysian palm oil futures hit record highs, helped by hopes of Chinese buying following weather damage to China's rapeseed crop.

 

The country's 2008 rapeseed crop is seen falling by 200,000 tonnes from last year despite an acreage increase, the country's top planning body said on Tuesday. "China relies for 60 to 70 percent of its (oilseeds) need on imports. And if you try to raise the domestic output, it might take land away from grains production," said Zhu Baoliang, chief economist with the State Information Center, a government think-tank.

 

China's domestic output of oilseeds, including rapeseed, has come down from records in 2005, partly due to Beijing's policy to encourage farmers to grow more grains such as corn and wheat.

 

While China is currently self-sufficient in corn, wheat and rice, its dependency on imported oilseeds and vegetable oils has grown each year, with soy imports expected to rise by 15 percent to 33 million tonnes in the year to end-September.

 

Helped by anticipation of tight oils supply, cash soyoil prices in China gained more than 500 yuan per tonne ($69) since the country has resumed business after the Lunar New Year holidays last Wednesday.

 

High prices of food have pushed inflation to an 11-year peak, and have also led Beijing to clamp price controls on a number of staples including cooking oil. Industry officials said Beijing planned to build 1.5 million tonnes of reserves in soyoil, the most popular cooking oil in China. It also aimed to stock 5 million tonnes of soy, which it needs to source from the United States or South America.

 

It is unclear how much Beijing has bought so far, but industry figures think reserves are small. Beijing failed to release any vegetable oils stocks in the run-up to the Lunar New Year holidays this month, even though the market had expected it to do so.

 

Asked if the soyoil reserves might have reached 1 million tonnes, an executive at an international trade house in Beijing said: "No way...I don't think they have much on hand. They are still in the process of accumulating."

 

Traders and officials said once the government had stocks of more than 1 million tonnes, it could help stabilise prices, though it would be still a fraction of China's annual vegetable oils consumption estimated at about 25 million tonnes.