Oils & Oilseeds Production Analysis and Forecast

Summary of Oilseeds Market In October 2004, thanks to the favorableweather, the soybean, peanut, cotton, corn and paddy harvest was carriedout smoothly in producing regions all over China. By the end of October,the soybean, peanut and cotton harvest in northern China had almostfinished. In northeast China, since the frost came later than usual, thelate soybean had enough time to grow and ripe. When frost came in lateOctober, the soybean in Heilongjiang and Inner Mongolia had completelyriped, therefore, the yield and production both increased. CNGOIC hasraised the projection on the production of soybean this year. Since theyield and acreage both increased, the soybean production this year inChina is definitely to reach the historical highest.

In October, the demand for soyoil and soymeal dropped, with the end ofbusy season around the National Day holiday and Mid-autumn Festival. Thedecrease in soyoil demand pulled down the price. The changes in livestockon hand led to the reduction in soymeal demand and price. Besides, duringthis period, the prices of soybean, soyoil and soymeal in theinternational market declined greatly, with FOB price of soybean future inCBOT nearly down to less than 500 cents, which further pulled down theprice in Chinese market. The crushing factories and refined oil producersall suffered great loss and reduced greatly the operation rate.

In October, the soybean imported from South America kept arriving in largeamounts, forming great proportion in the total imports. The soybean fromthe US started to increase in early October and tended to dominate thesoybean import only in late October. In the usual years, the amount ofimported soybean arriving in October is limited. However, this year, thequality problems of South American soybean delayed the import to China.When it came to October, the 2003/04 marketing year has ended. The soybeanimport was 16,930 thousand tons.

In October, the newly produced soybean and cottonseeds started to enterthe market. In northeast China, a small amount of rapeseed also enteredthe market. The downward trend in international prices of soybean and rapemeal caused the drop in rapeseed prices in Chinese market. The farmers innortheast China began to be reluctant to sell rapeseed and farmers innorthern China were not willing to sell cotton and peanut. In October, thedomestic rapeseed crushing factories and refined oil producers sufferedgreat loss, which had never happened for the latter in history.

In October, China started to put in force the new national standard foredible oil, which will have significant influence on the soyoil importfrom South America, since the solvent remnant in their crude soyoil istwice as high as what the new standard permits. Therefore thedomestic-produced soyoil will be a substitute of the imported soyoil.South America has encountered great difficulties in the export of soybeanand soyoil to China since this year.

It is projected that in 2004, the soybean acreage in China will reach9,600 thousand hectares, up 3% from the 9,310 thousand hectares in 2003.The soybean output is expected to reach 18 MMT, 17% higher than that in2003. During the interval between last and this monthly report, CNGOIConce intended to raise the projection to 18.8 MMT, but according to thelatest data, the increase is not that much as expected.

The soybean consumption for crushing in 2003/2004 marketing year will be25 MMT, including 18.5 MMT of imported soybean and 6.5 MMT of domesticsoybean, the same as the consumption in 2002/2003. In 2003/2004 theimported soybean has reached 16,930 thousand tons, 4,480 thousand tonsless than the 21,420 thousand tons in the previous marketing year. In2004/05, the soybean consumption for crushing is projected to reach 28MMT, including 20 MMT of imported soybean and 8 MMT of domestic-producedsoybean. The imported soybean in 2004/05 is expected to reach 19 MMT, up12% from the previous year. CNGOIC adjusts down the prediction of 22 MMTof import in the last report, since the stock of imported soybean was in ahigh level at the end of 2003/04 and the procurement of US soybean is notactive at present.

In 2003/2004, the soyoil and soymeal production in China is projected tobe 4,350 thousand tons and 19,870 thousand tons respectively. In 2004/05,the soyoil and soymeal production in China is projected at 4,880 thousandtons and 22,300 thousand tons respectively.It is anticipated that in 2004 the rapeseed production in China will reach12,500 thousand tons, up 9%, or 1,080 thousand tons from that in 2003. Theproduction of "double-low" rapeseed is expected to reach 3,580 thousandtons, constituting 29% of the total.

The rapeseed consumption for crushing in 2003/2004 is projected at 11,240thousand tons (including 10,820 thousand tons of domestic-producedrapeseed and 420 thousand tons of imported rapeseed), 1,240 thousand tonsgreater than the previous year. The rapeseed consumption for crushing in2004/2005 is projected at 12,200 thousand tons, including 11,900 thousandtons of domestic-produced rapeseed and 300 thousand tons of importedrapeseed.

In 2003/2004, the rap oil and rape meal production in China is projectedat 4 MMT and 6,570 thousand tons respectively. In 2004/05, the rap oil andrape meal production is projected at 4,360 thousand tons and 7,100thousand tons respectively.

It is projected that in 2004, China will import 19 MMT of soybean, down8%, that is 1,740 thousand tons from that in 2003. The amount of exportedsoybean will reach 280 thousand tons, almost equal to that in 2003. Theamount of imported soyoil is expected to reach 2,600 thousand tons, up38%, that is 720 thousand tons, compared with that in 2003. The amount ofexported soymeal is projected at 600 thousand tons, down 22% from 2003.

It is projected that in 2004, China will import 400 thousand tons ofrapeseed, up 140%, that is 230 thousand tons from that in 2003. The amountof imported rap oil is expected to be 350 thousand tons, up 131%, that is200 thousand tons from that in 2003. The amount of imported palm oil isprojected to be 3,500 thousand tons, up 5%, that is 180 thousand tons fromthat in 2003.

Supply and Demand Analysis and Forecast

In the following analysis and projection, we will not consider the stock,but simply regard the summation of annual output and import as the annualnew supply and get the annual balance by subtracting the total consumptionfrom the new supply. The balance will not be added to the next year, whichcan reflect the change in ending stocks of each year.

In 2003/04, the new soybean supply is estimated to reach 32,330 thousandtons, including 15,390 thousand tons of production, and 16,930 thousandtons of imports. The consumption for crushing is projected at 25 MMT(including 6.5 MMT of domestic soybean and 18.5 MMT of imports), the sameas that in the previous year. In 2004/05, the new soybean supply isprojected to reach 37 MMT, including 18 MMT of new production, and 19 MMTof imports. The consumption for crushing is projected to hit the recordhighest of 28 MMT (including 8 MMT of domestic soybean and 20 MMT ofimports), 3 MMT more than the previous year.

In 2003/04, the new soyoil supply is estimated to reach 7,080 thousandtons, including 4,350 thousand tons of production, and 2,730 thousand tonsof imports. The total annual consumption is expected to be 6,700 thousandtons (including 6 MMT of consumption for food and 700 thousand tons forindustry and other uses), 1.05 MMT more than the previous year. In2004/05, the new soyoil supply is projected to reach6,880 thousand tons,including 4,880 thousand tons of historical highest production, and 2 MMTof imports. The total consumption is expected to be 7,670 thousand tons(including 7 MMT of consumption for food and 670 thousand tons forindustry and other uses), 970 thousand tons more than the previous year.

In 2003/04, the new soymeal production is estimated to reach 19,870thousand tons. The total consumption is expected to be 19,780 thousandtons (including 18,500 thousand tons of consumption for feed, the same aslast year, and 630 thousand tons for export), slightly less than that inthe previous year. In 2004/05, the new soymeal production is projected at22,300 thousand tons. The total consumption is expected to be 21,700thousand tons (including 20 MMT of consumption for feed, which is 1.5 MMTgreater than that in the previous year, and 1 MMT for export), 1,920thousand tons more than the previous year.