Wednesday: China soy futures settle mostly lower; more downside ahead

Soy futures traded on China's Dalian Commodity Exchange settled mostly lower Wednesday due to broad weakness in commodities, and analysts expect ample supply and pre-holiday liquidation to lead to further losses in coming days.

 

The benchmark May 2010 soy contract settled RMB10 lower at RMB3,701 a metric tonne.

 

Total trading volume for all soy contracts fell to 615,912 lots from 790,690 lots Tuesday.

 

Ample domestic supply, recent weakness in Chicago Board of Trade soy futures and a decline in the benchmark Shanghai Composite Index during the afternoon session Wednesday weighed on agricultural products, analysts said.

 

"The bounce in CBOT soys last night was largely due to the weak U.S. dollar, so that also failed to offer much support today," said Li Xiaoli, an analyst at Beite Futures.

 

Market talk that part of the state soy reserves will be allocated to the local reserves of major producing regions also clouded the market.

 

The Heilongjiang Soy Association said on its Web site late Tuesday that 1.95 million tonnes of soys from state reserves will be transferred next month to local governments in the northeastern provinces and the Inner Mongolia Autonneomous region with a subsidy of RMB210 per tonne.

 

The association didn't provide any further details, or clearly state the source of the information.

 

"The manager of the state reserves has to move the old beans out of the warehouse, as the new harvest is about to begin," said Wu Qiujuan, an analyst at Xinhu Futures.

 

If confirmed, this would act as a subsidy for crushers, as they would be able to buy beans from state reserves at a lower price, so the news added to downward pressure on the cash market, Wu said.

 

Soymeal and soyoil futures also settled lower.

 

Due to higher margin requirements ahead of the long local holiday break Oct. 1-8, liquidation of positions expected over the next few days means further downside is very likely, Wu said.

 

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

 

Contract    Settlement   Price   Change      Volume

Soy          May 2010     3,701   Dn      10   615,912

Corn         May 2010     1,737   Dn      3    65,938

Soymeal    May 2010     2,754   Dn     15   752,452

Palm Oil    May 2010     5,904   Dn      14   387,774

Soyoil        May 2010     6,994   Dn     12   439,576