Dry Weather in China Could Mean More Imports

July 12, 2010 12:20 PM

Last year, China's corn and soybean areas showed good vegetative growth at this time. This year, the opposite is true, so expect continued purchases for import. 

The red and yellow sections in the Vegetation Health Index graphics from Planalytics, a company that provides weather information to businesses, show plant stress in the production areas. The 2010 panel on the left shows that nearly all the Northeast [1] has extremely low index values (red shades); the North China Plain [2] has about 40% with extremely low index values; and the Sichuan Basin [3] has mainly moderately low values (deciduous vegetation that is less vulnerable to flooding might be masking the magnitude of the problem for field crops).

Whereas some traders don't believe China will buy as much this fall as last year, this suggests it will continue to be in the market, supporting prices.

With a good rally behind us, you may want to consider protecting recent gains, but this and USDA's recent reports suggest a minimum price contract at the elevator (or other contract that sets the floor but allows you to participate in additional rallies), a put option purchase or placing sell orders under the market that will be triggered if prices head south may be appropriate rather than strategies such as forward cash sales or futures hedges that lock in the price.

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