Soybean Mogul’s Bets Swell China’s Imports: Commodities

Photographer: William Bi/Bloomberg

Shao Guorui, chairman of Shandong Sunrise Grain and Oil Trading Ltd. Close

Shao Guorui, chairman of Shandong Sunrise Grain and Oil Trading Ltd.

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Photographer: William Bi/Bloomberg

Shao Guorui, chairman of Shandong Sunrise Grain and Oil Trading Ltd.

When Shao Guorui makes money trading soybeans in China, he buys rosewood from tropical forests and carving stones from Fujian province that were once used to make imperial seals.

“These things hold their value,” said Shao, sitting in his Beijing office stroking a pile of scented yellow wooden beads from Hainan Island in the country’s south. In front of the 45-year-old chairman of Shandong Sunrise Grain and Oil Trading Ltd., two laptop computers on a six-meter Brazilian red rosewood table flicker with prices from the Chicago Board of Trade. “That kind of money comes and goes,” he said.

Shao, who accounted for 10 percent of soybean shipments to China in 2012, more than global traders Wilmar International Ltd. (WIL) and Cargill Inc., may double transactions next year. He’s increased volume 10-fold since entering the business in 2006, making him the biggest importer in the No. 1 consuming nation at a time the U.S. Department of Agriculture projects China’s purchases will surge to an all-time high.

Prices in Chicago, which fell 23 percent the past year on expectations that bigger U.S. harvests would bolster global inventories, are set to rise 2.5 percent from current levels to $13.30 a bushel this quarter, according to the median forecast of 14 analysts compiled by Bloomberg. They’ve advanced 5.9 percent since Aug. 12, when the USDA trimmed its domestic crop estimate.

Shipment Forecasts

Shao imported more than 6 million metric tons of soybeans in 2012 and projects 8 million tons this year, he said, dressed in white sports shirts, casual trousers and wearing a watch by A. Lange & Sohne during visits to his office by Bloomberg News. Independent agriculture researchers at Shanghai JC Intelligence Co. and China Cereals and Oils Business Net, who said they couldn’t track every deal, had tallies showing shipments exceeding 5 million tons.

His purchases help farmers in the U.S. and Brazil, the biggest growers, and are a mixed blessing for China’s soybean crushers. Processors benefit from him bearing the risk on cargoes that are priced at the point of origin months before arriving at Chinese ports, and struggle with narrowing margins when his imports swell supply.

“Some blame Shao for dumping imports and contributing to the industry’s losses last year,” said Li Qiang, the chairman of Shanghai JC, who has analyzed agriculture in China for more than 30 years. “Others see opportunities working with him and his clout is destined to increase as long as banks back him and he keeps providing crushers with immediate access to beans.”

Right Vibe

A native of Rizhao in eastern Shandong province, Shao quit junior high school to sell livestock feed before buying out a bankrupt soybean crusher with help from his brother.

Now he lives in a high-rise apartment in Beijing’s central business district and commutes to a three-room office at a suburban shopping mall that specializes in arts and crafts.

“If you put me in a large company, I wouldn’t survive a day,” he says in Mandarin with the thick tones of Shandong. “I like it here, the vibe is good, and you’ve got to create the right psychology to trade well.”

Shao, who declined to disclose his wealth, says he’s ahead as much as $82 million on a series of cargoes for October delivery that took advantage of restricted supply from South America before U.S. crops made it to market. Bloomberg News couldn’t independently verify the details of these trades.

Futures Spreads

Many transactions have gone wrong, including earlier this year when he paid about $8 million to customers after failing to deliver shipments on time because of congestion at Brazilian ports. Spreads between July and November contracts in Chicago started moving against him at the time, forcing Shao to renegotiate with suppliers to limit losses.

His brother Shao Zhongyi, the chairman of closely held Shandong Chenxi Group Co., was ranked by Forbes as the 357th richest person in China last year with wealth of 3.2 billion yuan ($520 million). Shandong Sunrise is part of the group, which has businesses ranging from petrochemicals to financial services, according to its website.

The brothers are part of a generation of entrepreneurs that is being forced to adjust some of its business strategies as the government addresses imbalances created by decades of surging growth.

Premier Li Keqiang and President Xi Jinping are seeking to reel in overcapacity in industries ranging from steel to cement and are cracking down on commodities trades that double as financing deals to remove excessive lending.

Crush Margins

As much as 51 percent of China’s 120 million tons of annual soybean crushing capacity is idle because of too much expansion in the industry, Singapore-based Wilmar said in its annual report.

Pretax profit at the oilseeds and grains division of the company, which is the largest crusher in China, dropped 97 percent in 2012 amid overcapacity and “dumping of soybean products by speculative players,” according to the report.

Officials at Wilmar declined to respond to e-mailed questions about trading by Shao and the impact of his shipments on supply.

Shao said buying cargoes to use as collateral to get credit for other investments helped drive growth when he started importing soybeans seven years ago. It’s shrunk to be “just one aspect” of the business, he said, without being more specific.

China’s benchmark seven-day repurchase rate, which measures interbank funding availability, reached a record 12.45 percent on June 20 as the government sought to squeeze excess liquidity out of the financial system. It was at 4.51 percent today after the People’s Bank of China injected some money back into the economy.

USDA Estimates

The USDA, which projects Chinese imports to reach a record 69 million tons in 2014, forecasts that 67.7 million tons of soybeans will be crushed.

Processing soybeans into meal and oil was unprofitable for six of the past 12 months in China, according to data from Shanghai JC. Margins averaged a negative 169 yuan and swung between losses of 783 yuan and gains of 404 yuan, the data show.

Mixing commodities trading with financing transactions makes it difficult to predict the volume and timing of Shao’s imports by looking at supply and demand, and means he can sometimes profit when the crushing industry doesn’t, said Li at Shanghai JC.

“Opportunities come up a couple of times a year and I seize them.” said Shao. “I’ve done it so long now that I do it by instinct.”

To contact the reporter on this story: William Bi in Beijing at wbi@bloomberg.net

To contact the editor responsible for this story: Brett Miller at bmiller30@bloomberg.net

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