Soybean Prices Dive After CBOT Acts : Italian Firm Admits Big Buys but Says No Cornering Intended
Ferruzzi Finanziaria S.p.A.,a giant Italian industrial and financial firm that was rumored to be trying to corner the world soybean market, admitted Wednesday that it accumulated large amounts of July soybean futures contracts over several months. But it said the action was “done openly” and legally to assure adequate supplies to its processing plants and customers in the wake of last summer’s drought.
Meanwhile, in Wednesday’s trading, soybean prices plummeted as traders unloaded contracts in response to an emergency order issued Tuesday by the Chicago Board of Trade, or CBOT.
Ferruzzi, Western Europe’s largest grain trader and owner of Central Soya, a large soybean processor in Ft. Wayne, Ind., said in a statement that its accumulation of beans “was undertaken so that the group could assure the uninterrupted operation of its processing plants . . . and to satisfy export commitments, particularly to the Soviet Union.”
It added that last summer’s drought, which hit soybean production particularly hard, could have caused it to run short of supplies this year.
Reports of a possible cornering of the soybean market, supposedly by Ferruzzi, led the CBOT, the nation’s largest commodity exchange, to take unusual emergency actions Tuesday. It ordered traders to sell July soybean contracts to avert a possible squeeze stemming from last summer’s drought. Huge numbers of the July soybean contract were being accumulated by traders, far more than the supply of soybeans available to satisfy the contracts.
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. In soybeans, the contracts involve 5,000-bushel lots. One type of corner could occur 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 of the contract cannot acquire enough to honor their delivery commitments, thus driving up prices.
The Chicago Sun-Times reported that the CBOT action stemmed in part from complaints by Archer Daniels Midland Co., the Decatur, Ill.-based agribusiness giant that has been competing against Ferruzzi for soybean supplies. An ADM spokesman had no comment Wednesday.
One analyst called Ferruzzi’s market position similar to that of Nelson Bunker and William Herbert Hunt of Texas, who in 1979 and 1980 tried to corner the silver market by accumulating large numbers of silver futures contracts. They succeeded in temporarily driving up the price to record levels, only to see it collapse. The two Hunt brothers declared bankruptcy last year after losing $1.3 billion in silver trading.
CBOT spokesman Mark Prout on Wednesday could not comment on whether an investigation was under way of any possible improprieties by Ferruzzi or any other parties.
“If there was anything improper, it’s before our business conduct committee,” Prout said, noting that the committee’s deliberations are confidential until disciplinary actions are announced publicly.
Liquidation Order Similar
A spokesman for the Commodity Futures Trading Commission, which regulates the futures markets, said the agency has been monitoring the situation in the grain and soybean pits for months because of the effects of the drought. But he could not confirm or deny whether its own investigation was under way or being contemplated.
Under the CBOT action, all traders holding commitments to buy or sell more than 3 million bushels of soybeans for delivery this month must reduce those positions by at least 20% each trading day through July 20, when the July contract expires.
A similar liquidation order was issued by exchanges stemming from the Hunt silver situation.
Ferruzzi and some traders, however, criticized the CBOT action, saying it was an unwarranted intrusion into the market and would undermine the reliability of CBOT contracts.
“Traders by and large are against the move. Their expression is that we’re free traders, we believe in free trade, we promote free trade, so why don’t we let the free market take care of the situation, which it will,” said Bud Frazier, executive vice president at Balfour Maclaine Futures Inc. in Chicago.
‘Not Like Hunt Situation’
Ferruzzi said in its statement that its actions to accumulate soybean contracts “were within accepted practices, and the emergency order issued Tuesday was taken in disregard to the true economics of the marketplace.”
Frazier dismissed reports likening Ferruzzi’s large accumulation of July contracts to the Hunts’ silver debacle, noting that soybean prices at just below $7 a bushel are nowhere near the record levels of about $13 a bushel.
“I don’t see this as a Hunt deal at all,” he said. “The magnitude is nothing like the size of the Hunt situation.”
Some experts doubted that it is technically possible to corner the massive 520-million-bushel soybean market, especially given regulatory controls and policing machinery in place on exchanges.
In Wednesday’s trading, prices fell by as much as 45 cents a bushel for spot July contracts--3 cents lower than the record low for the contract--before closing about 39.5 cents lower at $6.865 a bushel. Other contracts ended 25.5 cents lower to 7 cents higher.