Massive soybean defaults loom as China buyers play hard ball

RIZHAO, China (Reuters) — Chinese buyers may default on a further 1.2 million tonnes of soybeans worth $900 million that are being shipped from the United States and South America to avoid huge losses in a depressed local market.


Buyers have already walked away from at least 500,000 tonnes in recent weeks.


Trading firms have refused to make payments for about 20 shipments, said Shao Guorui, general manager of Shandong Sunrise Group, the country’s top buyer.


“Most of the cargoes were delivered by the seller before receiving letters of credit, and buyers are unwilling to pay now because they will suffer massive losses,” said Shao.


The problem is weak demand for soymeal used in poultry feed due to bird flu outbreaks.


Shao said soymeal demand could fall 15 percent from year ago because farms are reluctant to restock poultry after heavy losses.


So many shipments at risk of a default means Chinese buyers now have bargaining power.


“Most of the cargoes will eventually be sold to China. This will force sellers to renegotiate prices, which will benefit buyers,” said Gao Yanbin of Shanghai Shenkai Investment Co. Ltd.


“If buyers cannot resolve the issue, they may also cancel future shipments.”


Shao estimated that the companies behind the 20 shipments had booked 80 to100 cargoes for delivery between April to July, most of which were sold by Marubeni.


Some Chinese commodity buyers have previously threatened to default, or cancel cargoes, to force sellers to take lower prices.


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