Market Matters Blog
Katie Micik DTN Markets Editor

Wednesday 03/05/14

One Cancellation Down, How Many More to Come?

China cancelled a soybean shipment this morning, and as DTN analyst Todd Hultman told me, it's the first time in a long time the sell-side of the soybean market has had much to talk about.

Everyone expects cancellations. The lingering question is, how much will China cancel? This morning, China canceled 245,000 metric tons, about 9 million bushels. It's not their first cancellation of late, but it's different because it wasn't offset by news of a new purchase.

Export sales are roughly 90 mb more than USDA's projected export demand number of 1.51 billion bushels. One of the newsletters I read pointed out that 3 million metric tons of soybeans that have been marked "sold" still need to be shipped. Of that, 2.6 mmt are marked for China and another 500,000 mt have been sold to "Unknown," which most people assume means China.

There's room for China to cancel more shipments from the U.S. And after last year's port delays in Brazil and this year's political fiasco in Argentina, who could blame them for being cautious.

"Outguessing China's actual need is tough, but their demand looks legitimate so far, so I do not expect a lot more --- 50 mb or less?" Hultman said. "Old-crop supplies are still tight, even if 80 mb more are cancelled."

While China's appetite appears to be strong, there are some reasons for concern. DTN China Correspondent Lin Tan has a story on the impact of the H7N9 flu virus on the country's poultry industry (look for it in the news segment Wednesday or Thursday). He says it's having a big impact on the feed industry.

"Feed demand down 25% in the first two month of 2014. Soybean crushing margin is negative now. Soybean crushing companies have a big storage of meals. The crushing industry is expecting to process less beans in the following months. We also see the stock at the import ports getting higher: It was 5.2 mmt in Feb., will get to 5.6 mmt this month and is expected to be 6.2 mmt next month, according to local market players."


Posted at 11:57AM CST 03/05/14 by Katie Micik
Comments (5)
How can china just cancel a shipment? If I buy grain for future delivery I have to take it or at leased pay the difference in price.
Posted by FRANK FULWIDER at 7:13AM CST 03/06/14
That's a really good question Frank, and unfortunately there's not a very good answer. Here's what I've gathered from conversations with traders who work with China, academics and few Chinese traders I've met. One of the first things I'm always told is that there's some kind of an "out" clause in the contract, and China most likely pays a penalty fee. Sometimes, there's a clause that allows them to shift into a contract with a different origin. It shows up here as a cancellation, but for the grain company, it's still a sale. Also, one of the reasons why Chinese companies seem to cancel more than other countries is that they're not allowed to hedge on CBOT. They have the Dalian Exchange, but it's not nearly as liquid or true to global prices and doesn't quite work for them. The lack of hedging ability means makes them more willing to cancel a contract and pay a penalty fee if the market price goes down -- they still end up ahead. I wish I had a better answer for you, but this is about all the information I've been able to gather, and no one will go on the record either.
Posted by KATIE MICIK at 9:10AM CST 03/06/14
As a answer to your questions of how much of the US soybean crop will the Chinese buy, from the the way the markets are acting it looks like to me; the answer is All the Rest of it !
Posted by JONATHAN HOOK at 5:36AM CST 03/07/14
Hi Katie - Frank . Puede suceder que el exportador 'ABC" reemplace una venta de poroto a China con embarque en el Golfo por otra con embarque en Brazil / Argentina con una 'prima de descuento"en el precio que compensa la multa por anular la compra a USA saludos
Posted by Unknown at 9:25AM CDT 03/10/14
Thank you unknown commenter. My Spanish is rusty, but with the help of Google translate, here's what I think you're saying: It may be that the 'ABC' exporters of beans replace a sale to China from the Gulf with a shipment from Brazil/Argentina with a "premium discount" on the price that compensates for the canceled the purchase from the USA.
Posted by KATIE MICIK at 4:17PM CDT 03/11/14
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