Some of the world's largest grain traders operating in Brazil said liquidity would determine whether they used the new South American soyabean futures contract to debut on Chicago Board of Trade on Friday. The new South American beans contract will be the first with delivery outside the United States and large grain traders like Cargill, Bunge, Louis Dreyfus and ADM, and funds that invest in commodities will be looking for liquidity. "If the contract has liquidity, the larger grain traders like us will certainly use it," head of trading and origination in Brazil at a large US-based grain trader said. But he added that without liquidity it would be useless, much like other contracts launched recently on US commodities markets.
"Well, everyone was excited about the new ethanol contract but look at it now. It's not traded enough to be useful," he said.
Traders said the new contract could protect large companies that did origination of beans in the interior of Brazil from price fluctuations during the time they received the beans from a producer until they delivered them to a buyer.
But many smaller trading houses and soyabean brokers in Brazil were unlikely to use the contract, whose administrative costs are beyond their budgets.
Large trading houses also say that part of the success of the new contract will depend on speculative money.
"This is important. There needs to be at least some speculative activity by funds in the contract for purposes other than hedging," said a trader at a large European-based grain company.
Traders at the large multinationals said it would be at least a week before they had any sense of whether there would be sufficient liquidity to warrant using the contract.
"We have no plan to take a position with the contract immediately," said a trader at a large US-based soya exporter. "We will first watch to see if it has liquidity. All will depend on the performance of the contract in the first few weeks."
Except for large producers like Brazil's Amaggi outfit, bureaucratic requirements and the administrative costs will put the contract beyond the reach of the average producers in the region as a hedging instrument.
"In the short term there will be few producers that will be able to effectively manage operations on the Chicago exchange," said analysts Celeres in its weekly report on the soya market.
Some large traders, however, such as Latin America's largest grains co-operative COAMO whose president Jose Aroldo Gallassini will at the CBOT Friday morning to ring the opening bell, are optimistic about the new soya contract.
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