Chinese investors rush for bullish soyameal options on trade spat fears

Chinese investors have piled on bullish options trades in soyameal to brace for soaring prices after Beijing threatened to impose new duties on US soyabean imports, adding to market jitters that the world's top consumer would enter a trade spat. The sudden burst of activity comes after the most-active September futures prices shot to record highs of 3,400 yuan per tonne on Monday as trading resumed after a two-day public holiday last week.
Just ahead of the holiday, Beijing had announced plans to slap additional duties on US soyabean imports and more than a 100 other products in retaliation for Washington's recent aggressive trade actions. The steep build-up of call options for September suggests that traders and feed makers are expecting hefty additional penalties on US oilseed, which will inflate prices of soyameal, a key ingredient in animal feed.
Some of the most liquid call options, however, are now at out-of-the-money strike prices with a premium of more than 300 yuan over the current prices, skewing the market to a more bullish territory. "Soyameal futures fell yesterday, but lots of people still have a bullish view on long-term prices," said Yang Linqin, analyst, Cofco Futures.
"With falling futures they don't dare to increase their positions, but open interest in options increased." Some analysts say trade tariffs could eventually push up the retail price of pork, a staple in Chinese cuisine, although a surplus of meat may dampen the impact. The world's biggest pork producer, China, buys about 60 percent of globally traded soyabeans, which are crushed to make meal, a key ingredient in feed for livestock such as pigs.
The buying can partly be explained by investors switching out of May contracts into September ones ahead of their expiry. Open interest, a measure of liquidity in a contract, in calls with a 3,600 yuan strike price hit 3,909 lots, equivalent to almost 40,000 tonnes of meal worth 125 million yuan ($19.91 million) on Wednesday. Open interest in calls with a 3,550 yuan strike rose to 4984 lots on Wednesday. There was zero activity in those contracts on Monday. An option gives the holder the right to buy or sell a future at a certain price.