Massive Soybean Default Looms as China Buyers Play Hard Ball – Top Buyer
China’s top soybean buyer states that Chinese buyers may default on an additional 1.2 million tons of U.S. and South America soybeans worth $900 million to avoid incurring huge losses in a depressed local market. Benchmark futures for soybeans in Chicago have gained 14% this year. Honoring these deals could cause Chinese buyers to lose as much as $7 million per shipment and possibly cause bankruptcy. Trading firms in China are dealing with weak demand for soymeal, mostly used in poultry feed, because of outbreaks of avian flu, and crushers are facing negative margins – making all unwilling to accept shipments at current prices. Indicating the pressure that the Chinese market is under, China’s Dongling Grain & Oil announced it expects to lose 202.8 million yuan ($32.60 million) in the first quarter of 2014 as compared to a net profit of 8.2 million yuan in the previous year. Chinese banks which historically asked for a 10% deposit for a letter of credit are now asking for deposits of between 20% - 30%, crippling trader’s cash flow, while at the same time the weak demand for soymeal is leaving them oversupplied.
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