China is expected to add grain purchase for reserve and offer subsidies to soybean processing companies in a bid to stabilize planting area of farm products, revealed a source to China Business News.

 

According to the source, China will purchase 1.5 million tons of soybean in northeastern areas, main soybean producing areas in China, at 0.925 yuan/kg, 5 million tons of corn, and 7.5 million tons of rice, for state reserve.

 

Another insider said Agricultural Development Bank of China (ADBC), one of China's three policy banks, granted 14 billion yuan to China Grain Reserves Corporation to purchase soybean for state reserve. The funds can afford 4 million tons of soybean in accordance with the price of 0.925 yuan/kg.

 

As China had purchased 1.5 million tons in October, the new round purchase would reach 2.5 million tons, which hasn't been confirmed by authoritative source.

 

The high expectation for soybean purchase has shored up soybean futures in Dalian Commodity Exchange by several days running.

 

To stop soybean price from diving in northeastern area, China had purchased 1.5 million tons of soybean for state reserve at 0.925 yuan/kg in October, with 10 million tons in Heilongjiang, 0.06 million tons in Liaoning, 0.21 million tons in Jilin, and 0.23 million tons in Inner Mongolia Autonomous Region.

 

But the move only boosted soybean price for a short time, which started to fall back after two weeks and has dived to the state purchase price of 0.925 yuan/kg in Heilongjiang and other localities.

 

Many fat processing enterprises have halted purchasing domestic soybean due to lower price of imported transgenic soybean.

 

According to an analyst with Wanda Futures, as the price of imported soybean is 300-400 yuan/ton lower than that of domestic soybean, more import soybean has rushed in Chinese market and may take up 70-80 percent shares from the current 60 percent if China fails to launch efficient measures.

 

Some experts said China was likely to roll out support policies for domestic soybean processing companies in a way to offer subsidies to make up the margin between sales price and state purchase price.

 

China Oil & Foodstuffs Corporation (COFCO) and Heilongjiang Jiusan Oil & Fat Co., Ltd. (JOFC) are promising to enjoy the subsidies, predicated experts.

 

The state purchase of rice and wheat will also be increased to stabilize prices of farm products and guarantee their planting areas for 2009.

 

China's soybean output is predicated to reach 16.5 million tons this year, while the domestic consumption takes up 10 million tons, and state purchase for reserve may accumulate to 4 million tons.

 

That means only 2.5 million tons of soybean is expected to be left this year, and thus the soybean supply is basically balanced, supposed Zhang Yubin, an analyst with Wanguo Securities

 

To reach such balance, China shall impose further control on soybean import, added Zhang.