Chinese Whispers
The soybean market got a little spooked yesterday after leading Chinese financial magazine Caijing carried an unsubstantiated report that state-owned companies could be allowed to default on loss-making commodity derivatives trades.
With China the main export home for US soybeans by a country mile, accounting for three-quarters of last weeks 2 MMT of export sales, an attempt to walk away from commitments would have serious repercussions on the US market.
With CBOT soybeans currently close to their highest levels in twelve months, there perhaps isn't too much incentive to default on beans.
In addition measures introduced after China walked away from soybean contracts in 2004 mean that a bond is now required, further reducing the likelihood of defaults unless prices fell substantially from current levels.
On top of that China is about to begin it's own soybean harvest, and reports from top producing Heilongjiang province are that the crop could be as much as 30% down this year on a combination of drought and cold weather.
It would seem that there may be more of a temptation to default on energy and/or metals contracts. Defaults on energy futures would however inevitably have an indirect impact on soybean prices too if crude oil went into another tailspin.
With China the main export home for US soybeans by a country mile, accounting for three-quarters of last weeks 2 MMT of export sales, an attempt to walk away from commitments would have serious repercussions on the US market.
With CBOT soybeans currently close to their highest levels in twelve months, there perhaps isn't too much incentive to default on beans.
In addition measures introduced after China walked away from soybean contracts in 2004 mean that a bond is now required, further reducing the likelihood of defaults unless prices fell substantially from current levels.
On top of that China is about to begin it's own soybean harvest, and reports from top producing Heilongjiang province are that the crop could be as much as 30% down this year on a combination of drought and cold weather.
It would seem that there may be more of a temptation to default on energy and/or metals contracts. Defaults on energy futures would however inevitably have an indirect impact on soybean prices too if crude oil went into another tailspin.