Bid to Corner Soybean Market Spurs Action
The Chicago Board of Trade issued an emergency order Tuesday aimed at breaking up an attempted corner of the soybean market, described by one analyst as “the biggest market play since the Hunts’.”
The exchange’s board of directors ordered all traders holding commitments to buy or sell more than 3 million bushels of soybeans for delivery this month to reduce those positions by at least 20% each trading day through July 20, when the July contract expires.
Analysts said the order would likely result in a sharp drop in the July contract’s price at the opening of trading today.
Board of Trade spokesmen would not identify the parties involved but confirmed that the emergency resolution was designed to avert the crisis that would occur if the supply of soybeans available for delivery was too small to satisfy the contracts.
William Biedermann, director of research with Allendale Inc., a Chicago-area futures brokerage, said the situation was rooted in a large foreign-based grain company’s accumulation over the past 1 1/2 years of about 30 million bushels of soybeans--enough to control the market.
“It’s probably the biggest story since Bunker Hunt tried to squeeze silver,” Biedermann said, referring to the alleged attempt by the Hunt brothers to control the world silver market several years ago.
Futures are binding contracts to deliver or take delivery of a set amount of a commodity at an agreed-upon price at a future date. A typical corner occurs when a trader holding a large number of contracts to take delivery also owns so much of the commodity that those on the other side cannot acquire enough to honor their delivery commitments.
The artificial supply squeeze causes the price of the commodity to soar until the player working the corner sells out at a huge profit.
July soybeans settled Tuesday at $7.26 a bushel, compared to $6.64 for September delivery, a difference of 62 cents a bushel or $3,100 per 5,000-bushel contract.