November 28, 2005

 

Monday: China soybean futures fall sharply; benchmark limit-down

 

 

China's Dalian Commodity Exchange soybean futures settled sharply lower Monday, as investors' confidence in the market was battered amid constant reports of bird flu outbreaks.

 

Friday's decline in Chicago Board of Trade soybean futures also fueled a new round of selling in the local market.

 

The benchmark May 2006 soybean contract gave up RMB72 to settle at RMB2,537 a metric tonne, after falling to RMB2,505/tonne, its lowest level since mid-February. The contract's intraday high was at RMB2,596/tonne.

 

Total trading volume for soybean futures jumped to 463,236 lots from 185,364 lots Friday. One lot is equivalent to 10 tonnes.

 

After initial short selling dragged most contracts to the downside, active long liquidation joined the bandwagon, sending all of them to even lower levels.

 

The benchmark hit its limit-down, a fall of 4% from its previous settlement price, in the afternoon session before recovering slightly in the final minutes of trading.

 

The nearby January 2006 contract reached its limit-down midmorning and stayed unchanged for the rest of the day.

 

Analysts said stop-loss long liquidation was triggered after the benchmark breached technical support at RMB2,560/tonne.

 

Talk circulated that soybean importers in China have begun to lower or even cancel their booking of overseas soybeans or resell their imports to third countries due to falling domestic soymeal prices and sluggish demand.

 

Outbreaks of bird flu, which kill fowls and in turn reduces feed demand, have yet to show signs of being contained, despite lots of government effort.

 

Late Friday, China reported a new bird flu outbreak in Inner Mongolia, bringing the total number of confirmed outbreaks since October to 23.

 

To make matters worse, China has confirmed two human deaths caused by the disease in recent weeks, leading to worries of more human fatalities.

 

"The local market is overshadowed by bird flu," said a Shanghai-based analyst with a futures trading company. "CBOT soybeans will also have to bite the bullet if U.S. soybean exports to China are reduced by it (the disease)."

 

The U.S. is the world's largest soybean exporter, while China is the largest importer.

 

Dalian's No. 2 soybean contracts, which are encouraged to be delivered with soybeans harvested from genetically modified crops but are seldom traded, settled sharply lower.

 

The No. 2 May 2006 soybean contract lost RMB62 to settle at RMB2,527/tonne, after trading between RMB2,500 and RMB2,574/tonne.

 

Soymeal futures traded on the exchange settled sharply lower, in line with soybean futures.

 

Active long liquidation drove the benchmark May 2006 soymeal contract to its limit-down in the afternoon session.

 

The benchmark soybean contract declined RMB57 to settle at RMB2,160/tonne, after hitting a nine-month low of RMB2,129/tonne. Its intraday high was RMB2,208/tonne.

 

Corn futures traded on the exchange settled mostly lower on long liquidation.

 

The most heavily traded September 2006 contract settled RMB15 lower at RMB1,273/tonne, after trading between RMB1,262 and RMB1,285/tonne.