January 27, 2011

China's soy futures dive on CBOT losses, profit-taking

Soy futures on the Dalian Commodity Exchange settled sharply lower Wednesday (Jan 26), due to losses overnight on the CBOT, a cash crunch ahead of the Lunar New Year holiday, and domestic policy concerns.

The benchmark January 2012 soy contract fell 2.4% to RMB4,440 (US$674)/tonne, but fared better than palm oil and soyoil, which lost 3.5% and 3.3% respectively. Edible oils are a major target of the government's price monitoring efforts over the holiday period.

Investors are selling to reduce risk exposure before the seven-day Lunar New Year holiday that starts February 2, analysts said.

The selling is part of a technical correction triggered by the approach of the holiday and uncertainty about government policy tightening and price monitoring, following steady increases in prices over the past few weeks due to strong global demand and concerns about the effects of a drought in Argentina, the world's third-largest soy exporter.

A firmer US dollar and lower-than-expected UK fourth-quarter economic growth also damped sentiment on the bellwether CBOT overnight, he said.

Rains have also started to improve conditions for crop development in some areas of Argentina.

The holiday period is a peak consumption season, but the cash market is not providing bullish momentum because the government has been making price stability a priority and releasing soy and edible oils from stockpiles to ensure adequate supplies.