October 10, 2008

 

Friday: China soybean futures hit lower limit as equities plummet

           

 

China's soybean futures traded on the Dalian Commodity Exchange settled sharply lower Friday, dragged down by Wall Street's relentless downward spiral.

 

The benchmark January 2009 soybean contract settled RMB149 lower, or 4.3%, at RMB3,338/tonne.

 

The tumble in U.S. equities show the panic prevailing in markets of a fear of recession hitting major economies, prompting funds to exit even as governments around the world take measures to boost confidence and stop the financial crisis from spiraling out of control, said analysts.

 

The moderate fall and even slight rebound in DCE-traded agricultural products yesterday, which was helped by a mandatory liquidation in the session before, didn't signal a stabilizing market, they said.

 

Under the exchange rules, whenever contracts hit lower limits for three sessions in a row, long-position holders can apply for mandatory liquidation by the close of the third session. The long positions are sold to most profitable short-position holders.

 

Analysts said as long as the macro economy doesn't improve, commodity markets could decline further.

 

Gao Yunyue, an analyst at Dadi Futures Brokerage, expects further fall in soybeans to about RMB3,000-RMB3,200/tonne.

 

The tumble in crude oil futures towards the important supportive level of US$80 per barrel also weighed on the commodities market.

 

U.S. Department of Agriculture is scheduled to release its October crop report Friday at 8:30 a.m. EDT (1230 GMT). The average of analysts' estimates in a Dow Jones Newswires survey projects a crop size of 2.920 billion bushels with a yield of 39.9 bushels per acre. The averages ranged from 2.847 billion to 3.001 billion bushels for production and 38.9 to 40.9 bushels an acre for yields. In September, USDA projected a crop size of 2.934 billion bushels using a yield of 40.0 bushels an acre.

 

But, analysts said the possible positive news is unlikely to support the market.

 

The derivative market won't turn around soon as it lacks liquidity, said Xiao Jun, an analyst at commodities consultancy firm Shanghai JCI.

 

Open interest in all soybean contracts fell 11,128 lots to 329,542 lots Friday.

 

Trading volume declined sharply to 381,328 lots from 2,027,554 lots Thursday, as contracts hit their lower limit for most of the session.

 

Corn futures, soymeal futures, soyoil futures and palm oil futures, all settled sharply lower.

 

The benchmark soyoil futures and soymeal futures stayed at their lower limit for most of the session, while the benchmark palm oil contract opened at its lower limit and didn't move for the whole session.

 

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

 

Contract         Settlement           Price         Change         Volume

Soybean          Jan 2009            3,338         Dn  149        381,328

Corn               May 2009            1,620         Dn   49      1,271,208

Soymeal          Jan 2009             2,763         Dn  132         67,296

Palm Oil           Jan 2009             5,274         Dn  276           2,520

Soyoil              Jan 2009             6,826         Dn  342         46,492