From July 9 to July 13, 23.33 million transactions of soybean pulp futures were made in the Chinese market within one week, and at the weekend positions reached 1.98 million, which undoubtedly created a new record in the Chinese futures market. However, as the general situation tended to be stable, the soybean pulp futures gradually returned to normal and continued to be under steady operation. Market professionals point out that the steady operation of the soybean pulp futures has revealed the domestic (Chinese) futures market and its administrative capacity have reached a new level of development, and the market situation has been completely different from that of the past.
The weekly operation of the 1301 Contract shows that soybean pulp opened at 3,635 RMB per ton on July 9, then rushed high and fell back, closing at 3,771 RMB per ton on July 13. the average gain for the week was 144 RMB per ton, ranking fourth (same as the 1208 Contract) among the five contracts (from 1207 to 1301). On July 11, when the futures price turned to the downside reversal of the up trend, the transaction volume increased to 11.868 million, creating a new record of the transactions over one single contract—the underweight of the day surged from 154.5 thousand to 1.8826 million, and the market cooled down afterwards.
According to Shi Yan, vice president of Xinhu Futures Research Institute, the huge volume of soybean pulp transactions and positions in the last week has got its basics and fundamentals. Since the beginning of this year, under the constant influence of the European debt crisis and the increasing pressure upon the economic growth of the domestic (Chinese) economy, investors have switched their interest from industrial products to agricultural products so as to avoid the economic risks at the macro level. Since March, led by the price parity between the corn and the soybean, farmers at home and abroad have begun to expand the corn cultivation and reduce the soybean cultivation, creating the momentum for the recovering price rise of the soy soybean and soybean pulp and directly resulting in a wave of weak pricing on the corn and strong pricing on the soybean in the domestic (Chinese) futures market in March and April. Then, at the end of May, the IGC lowered its estimation of the soybean production in South America during the period from 2011 to 2012 to 114.4 million ton, decreasing by 16% compared to the same period of the last year. Plus, the productivity reduction due to the widespread warm and dry weather in the Mid-west of the US, the IGC estimated the global production of soybean would decrease by 30 million ton, and the global import volume would reduce by 2.3 million ton, which means that the storage of soybean and soybean pulp would considerably decrease. It also directly led to the substantial increase of the soybean and soybean pulp prices in the international futures market in June, which pushed the price of soybean pulp in the domestic (Chinese) market to a new wave of input and recovering rise.
In the consumption market, as the aquiculture entering into the traditional large-scale feeding phase and the prospect of the domestic poultry industry appearing to be good, especially the price of pork rebounding at the middle of June, which turned the private pig farming from loss to gain and recovered the incentive of the farmer supplementing the livestock, the demand for soybean pulp feed has been obviously increasing. Recently, fodder manufacturers have been intensively purchasing soybean pulp, resulting in the obvious reduction of soybean pulp inventory of oil producers and activating an increase of the actuals price.
Zhang Ruming, manager of the Research and Development Department of Dalian Fortune Futures Co. Ltd, believes that despite the dynamic transactions over soybean pulp and the considerable controversies over the straddle, the trend of the prices of the soybean pulp futures has never got away from the range of fundamentals, no matter from the perspectives of the internal and external price difference, the future and actual price difference or the long and short term contract price difference in the market. In seeking the future investment opportunities, investors may not subjectively believe that the pouring of the funds to the soybean pulp contract market will bring about incontrollable risks and blindly follow the rumors about the policy interference on the market, but with respect to the market law, especially focusing on the expectation resulting from the yearly alteration of the supply and demand for the old and new productions of the soybean in the international market.
Under the influence of the fundamental factors, the prices of CBOT agricultural products futures all rose in June, and the monthly price increase (increasing by 24.75%) of soybean pulp ranked first among all the agricultural products, while its price increase over the first six months of this year reached 34.01%, hitting a new historical record. the monthly price increase of soybean reached 12.39%, and 18.55% over the first six months of this year. the monthly price increase of soybean pulp in Dalian reached 11%, and 22% over the first six months of this year. Considering the two sides (the oil and the soybean pulp) of oil manufacturing, where the fluctuation range of the prices of soybean pulp futures in the domestic market apparently has not exceeded that of the international market.
According to the statistics provided by the Research Center of the Fortune Futures Company, in the domestic actuals market, the factory price of soybean pulp in Zhangjiagang reached 3,620 RMB per ton on June 25, monthly increasing by 12%, and rising by 24% compared to the price at the beginning of this year, and the number of price increase was higher than that of the soybean pulp futures. Since the beginning of this year, during the most of the time, the price difference between the soybean pulp actuals and futures has been within the normal premium and discount range, and the futures did not have large premium to the actuals. On the other hand, the relativity between the factory price of the common protein soybean pulp in Zhangjiagang, Jiasu Province, and the futures index price of soybean pulp is about 97.5%, which shows that the futures prices generally reflect the trend of actuals prices with no obvious deviation.
The price differences among the soybean pulp contracts show that currently, the major soybean pulp contracts are 1209, 1301 and 1305. These contracts appear to be strong in the short term, but weak in the long run. The high contract prices of the recent months just reflect the active demand of the current actuals market. However, it is expected that the cultivation area of soy soybean in South America will increase considerably in the next year, bringing the soy soybean of South America in a low premium in the long run, while the profit margin of the domestic oil manufacturing industry has rebounded, which makes the 1305 Contract of Dalian soybean pulp face the hedging pressure of the hedgers. Therefore, the current price differences of the soybean pulp contract in the domestic market completely reflect the general situation of the international soy soybean market as the shortage of the old productions and the considerable changes over the new supplies.
In the meantime, from the features of the positions, it can be seen that currently, the major soybean pulp contracts are still far away from the delivery months, and there is no problem of squeezing. Despite the high volume of positions, the entry of more institutional investors into the futures market is inevitable as the pace of the market development accelerates this year, which means that the market needs more capacity to sustain these institutional investors. From this perspective, large volumes of positions and transactions maybe will become a kind of normal situation, hence there may not be so much fuss about it in the market.
During the process of soybean pulp transactions and the development of the futures market situation, one of the major highlights has been that the market administration has shown their self-confidence and launched a series of market-oriented measures. According to the professionals in the Dalian Commodity Exchange, the bottom line of the market administration is to ensure zero systematic and regional risks. As the most actively exchanged commodity in Dalian Commodity Exchange, the soybean pulp futures has been the most intensively monitored commodity in terms of risk control since the beginning of this year, especially since this April, the board of exchange has been paying more attention to dynamically monitoring the situation of all the contracts, measuring risks and strictly preventing the illegitimate transactions, which ensures the steady and healthy operation of the market. Meanwhile, on July 11, when the price alteration became drastic and the volume of transactions reached the highest, the board of exchange found that someone was spreading false information through tweets. They timely explained the situation in their official tweets, avoiding the huge impact force upon the normal operation of the market in the sensitive period. At the meantime, they positively illustrated the real situation and left no space for false information to stabilize the market sentiment. Many traders and professionals copied the dispelling of the rumor in the official micro-blog of the exchange institute, while the rational response from the investors is also worth highlighting.
Market professionals point out that, historically speaking, huge volumes of transactions and positions over one single commodity would usually lead to huge risks. During the time, there would be margin calls on some investors, increasing disputes in the market and finally the interferences from the administration to resolve the risks. However, such kind of phenomena did not occur on the current soybean pulp futures market, reflecting the operative maturity of the domestic futures market. If the 2008 economic crisis was an overall examination on the CFTC system, Dalian Commodity Exchange would be undergoing a test on its market administration capacity for this time.
Meanwhile, it is reminded that despite the current temporary low profile and steady operation on the soybean pulp futures, the administration should still stay alert, because of the changing macro-economic situation, the heated speculation in the outside market and the relative large volume of positions over the contracts when there are still many changeable factors in the market. As the market expands, the special risk-avoiding function and investment features of the futures market will inevitably attract more speculative funds. To ensure zero systematic and regional risks, effective measures must be taken in advance.