URGENT CBOT Moves To Break Up Attempt To Corner Soybean Market
CHICAGO (AP) _ 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 percent 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 Wednesday.
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.
″I don’t think they would have called it an emergency if that situation didn’t already exist,″ said spokesman Mark Prout.
The emergency resolution said no player may control more than 3 million bushels of July soybean at the close of trading next Tuesday, and no player may control more than 1 million bushels by the contract’s expiration two days later.
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. ″It’s the biggest market play since the Hunts’.″
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.
The most famous corner of recent years involved the alleged attempt by then-billionaire brothers Nelson Bunker and William Herbert Hunt to control the world silver market in the late 1970s. Authorities charged that the Hunts’ buying of silver in conjunction with other investors pushed the metal’s price to a record high of $38.27 an ounce before the market collapsed.
The price of soybeans for July delivery actually fell sharply in trading Monday and Tuesday on the Chicago Board of Trade. But Biedermann said the type of corner attempted in the July contract hinged on the contract’s high price relative to the contract for September delivery.
July soybeans settled Tuesday at $7.26 a bushel, compared with $6.64 for September delivery, a difference of 62 cents a bushel or $3,100 per 5,000- bushel contract.