November 30, 2009

 

CBOT soymeal deliveries limited; heavy soyoil expected

 

 

Deliveries against the Chicago Board of Trade December soymeal contract on first-notice day could be non-existent, while December soyoil notices are expected to be heavy, analysts and traders said.

 

First-notice day for the contracts is Monday, which means it is the first day on which notices of intention to deliver actual commodities against futures-market positions can be received.

 

Analysts expect deliveries against the December soymeal contract to range from zero to 50 lots. December soyoil delivery notices are pegged in a range of 2,000-3,000 lots.

 

As of 5 p.m. EDT Wednesday, zero soymeal contracts and 13,923 soyoil contracts were registered for delivery at CBOT-approved warehouses.

 

Despite increased availability of new crop soy for processing, soymeal supplies remain in tight hands. Cash meal is trading above the delivery price and with quality issues raising concerns about processors' ability to make high protein meal, deliveries are expected to remain limited, a cash connected CBOT floor analyst said.

 

The soymeal market is inverted, showing there is strong demand for nearby supplies, and this is not a signal that receipts will be exposed to the delivery process, said Joe Victor, analyst with Allendale Inc.

 

The December-January soymeal spread is trading at an inverse with the front month at an US$10 premium to the deferred contract as of midday Friday, which indicates the short-term supply shortage as market participants look to secure the products necessary to honor their deliverable positions.

 

The inverse spread relationships are consistent in the market until later spreads beginning with the May 2010 contract reflect a traditional pattern of carry costs. Carry is the cost of taking delivery of the commodity and includes storage, insurance and interest, reflective of nearby contracts trading at a discount to deferred contract months.

 

It's the same story that has been reported in prior delivery periods for soyoil, said Don Roose, president of US Commodities in West Des Moines Iowa. Receipt holders feel they can put out supplies without much risk of losing the receipts, said Roose. The bulk of the supplies for delivery are located areas that is not attractive to end users to ship from, and the supplies do not work into formulas where biodiesel plants can take delivery, Roose added.

 

The majority of soyoil stocks are in eastern Iowa, with 3,996 lots registered in Ackley, Iowa and in Volga, South Dakota with 3,088 lots registered.

 

Nevertheless, soyoil deliveries remain the wild card, traders and analysts said. With 13,923 contracts registered for delivery and supplies in good hands, it's tough to figure just how many receipts could be put out, analysts said.