Margin call volume in China spikes as DCE soymeal futures plunge

The number of futures traders in China receiving marginal calls on Thursday spiked as a plunging soymeal futures board left many accounts below their maintenance margins.

According to two contacts at two major brokerages in China, margin call volume jumped since the morning as soymeal futures on Dalian Commodity Exchange (DCE) slumped with the main contract down more than 6% intraday to 3,850 yuan/ton ($574/ton) – the lowest level in four months.

Edible oil futures also extended their losses with the most liquid contracts down 3.5%-4%.

The sharp fall left many traders scratching their heads due to the lack of fundamental factors that could be fueling the selloff.

“Everyone is shocked, and don’t know how to price it anymore,” one soymeal trader commented.

Weaker futures market had strong spill-over effect on the physical market as well with crushers pulling back their soymeal offers and the spread among different offers widened from 50 yuan/ton ($7.5/ton) to 200-300 yuan/ton ($30-45/ton).

Buyers are also stranded because of not only the absence of offers but also the difficulty to make a trading decision.

“The question for soymeal buyers is whether or not to hedge now. The futures price is attractive but they are not sure if this is the bottom,” said another trader.

From a technical perspective, the current price has broken a key support level that has upheld the market since late April this year.

As weaker futures sent shockwaves across the financial sector, crush margins for imported soybeans into China corrected $15-20/ton lower this week with most of the curve back in negative territory.

The overarching bearish pressure from global inflation and the risk of higher interest rate is still significant and the US central bank is expected hike another 0.75% or even 1% in the next quarter.