August 13, 2009

Soy futures traded on the Dalian Commodity Exchange settled slightly lower Thursday, as funds switched to corn futures on concerns about drought in China's main soy and corn producing areas in the northeast.

 

The benchmark May 2010 soy contract settled down a marginal RMB5 a metric tonne at RMB3,841/tonne.

 

Analysts said soy futures will also suffer from selling pressure if prices rise above RMB3,850/tonne, as that would give the government an opportunity to sell soy from its reserves at prices above the base auction price of RMB3,750/tonne.

 

The benchmark contract traded between RMB3,819 and RMB3,873/tonne during the session.

 

The Office of the State Flood Control and Drought Relief Headquarters has said that the rapid development of drought in the northeast could have a negative impact on crops there, and the news was repeated in national television broadcasts overnight.

 

Major crops such as corn and soy are in a crucial growth period in those areas, and output could be affected, the office said in a statement published on its Web site Tuesday.

 

Analysts said the reports are providing speculative funds with an opportunity to push corn prices higher, amid flush liquidity.

 

There is drought in the major growing areas every year, and so far this year's situation is not particularly serious, said Shi Yan, an analyst at China International Futures Co.

 

However, flush liquidity allows funds to rotate through commodity products, pushing prices higher at every opportunity, he said.

 

Trading volume of all soy contracts declined to 307,514 lots from 462,954 lots Wednesday.

 

Open interest rose 4,854 lots to 272,592 lots Thursday.

 

Corn futures settled sharply higher, and soymeal futures, soyoil futures and palm oil futures also settled higher.

 

Trading volume of all corn contracts surged to 929,416 lots from 78,880 lots Wednesday as speculative funds flowed in to trade on the drought concerns.

 

Following are Thursday's settlement prices in yuan a metric tonne for benchmark contracts, and volume for all contracts in lots (One lot is equivalent to 10 tonnes):

                         

Contract      Settlement          Price         Change         Volume

Soy              May 2010          3,841         Dn    5          307,514

Corn             May 2010         1,715          Up   45         929,416

Soymeal       May 2010          3,017         Up   11       2,416,586

Palm Oil        May 2010          6,690         Up    2          842,258

Soyoil           May 2010          7,774         Up   16       1,287,406