China’s agricultural futures slide after recent sharp rally

By: |
Singapore | Published: July 8, 2016 11:17:48 AM

China's agricultural markets suffered deep losses on Friday, with oilseed meal prices hitting their lowest since early June, after a recent sharp rally that was spurred by hopes Beijing will unleash more stimulus to prop up the economy.

Agricultural futures in China have come under additional pressure due to weakness in global grain prices. (Reuters)Agricultural futures in China have come under additional pressure due to weakness in global grain prices. (Reuters)

China’s agricultural markets suffered deep losses on Friday, with oilseed meal prices hitting their lowest since early June, after a recent sharp rally that was spurred by hopes Beijing will unleash more stimulus to prop up the economy.

Commodity prices have been drawing support from expectations demand would perk up if China stepped in to spur economic activity in the world’s top consumer of raw materials.

But, these hopes eased after a survey showed China’s service sector activity hit an 11-month high in June, offsetting worries stemming from sluggish factory activity numbers.

Agricultural futures in China have come under additional pressure due to weakness in global grain prices, such as for Chicago soybeans that are set to see their biggest weekly decline since June 2014 on prospects of a bumper crop.

Dalian soybean meal futures had given up as much as 5.5 percent to trade at 3,024 yuan ($452.22) a tonne by 0513 GMT.

They were headed for a weekly drop of about 7 percent, after gaining as much over the seven days to July 1.

Rapeseed meal prices shed 6.7 percent to hit 2,507 yuan a tonne, lowest since June 3.

They were on track for a 10 percent weekly loss, versus an 8 percent rise last week.

“Prices had surged too much in the past and now there is some setback, which is pretty reasonable,” said an analyst with consultancy Shanghai JC Intelligence.

“There are other reasons such as fall in Chicago soybean prices. Rapeseed meal in China usually tracks what goes on in soybean meal which is the driver. Similarly, we see decline in other commodity markets like cotton.”

Chinese soybean meal hit a record high of 3,577 yuan last week, while rapeseed meal jumped to an all-time high of 3,003 yuan on Monday.

“It was purely fund buying which had driven prices higher and now they are selling,” said one Singapore-based trading manager with an international company that has soybean processing facilities in China.

Among other Chinese commodities, Shanghai rubber fell 5.8 percent to the lowest since June. Cotton fell as much as 5 percent.

In the United States, near-perfect weather is boosting crop prospects and dragging on prices. Chicago soybean futures are on track to end the week down almost 10 percent.

China buys 60 percent of soybean traded worldwide mainly from the United States, Brazil and Argentina. Beans are crushed into meal, a key animal feed ingredient, and cooking oil.

U.S. corn is set for a third weekly drop, buoyed by friendly weather in its crucial pollination phase, while wheat is on track to suffer its fifth week of losses.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.