| With the progressive standard of living , the demand of people for meat, eggs and milk is enhancing, followed with which many breeding industry, feedstuff and crash plants have been built and the import of Oil and soy meal stands up to a great amount. From 1996, when we began to import soybeans, the number of import is beyond the domestic production. Domestic production of soybeans is 13.5 million tons compared with 0.8 million tons of import in 1995.In 1996, we produced 13.22 million tons and imported 2.2 million tons indicating the beginning of large-scale import. In 2003, domestic production was 16.4 million tons and imported 20.74 million tons. It was the first time that the imported soybean is more than domestic production. In 2005, compared with the imported number of 26.59 million tons, we produced less by 9 million tons as 18.3 million tons. In 2007, the domestic production was 14 million tons and the figure of imported soybean reached to 30.82million tons. Our soybeans for crash mostly have relied on imports. From 1996 till 2005,the domestic soybean production rose by 5.08 million tons totally at the rate of 0.5 million tons per year and the number of import soared by 24.39million tons at the rate of 2.5 million tons within 10 years. Rising rate of import is as 5 times as the rate of domestic production.Such high rising rate of soybean import was followed with good market opportunity. Because the demand of soy oil, soy meal and other relevant products was higher yearly, great profit was met by the crashing industry.Thus, a great many crashing plants were extensively founded and almost carried out profit. However, owing to the plants pursue the profit blindly and subscribing contract but lack of even without risk management, large parts of our plants disappeared during Soybean storm of 2004, in which filled with the bankrupt and breach of faith.Our Plants merged after the year of 2004.The greatest world grain group entered China and finished merging in a few days. ADM, Cargill and Bunge stood 1/3 crashing capacity .Adding other foreign enterprises, they caught 40% crashing capacity of China. Except for the world grain the pricing of the world controlled by the world grain groups, they shared a large part of the market .it was evidently hard for domestic plants to live. Additionally, the crashing capacity reached to 70 million tons annually leading to serious surplus capacity. According to relevant statistics, the actually crashed amount is 33.5 million tons which means 2/3 capacity is out of use equal to 30-40 million tons.Surplus capacity, foreign share of market and the lesson from"Soybean Storm"are alarming us the importance of risk management. As the background of this article, it analyses the risk rooted from fluctuate price. The factors influenced soybean price are complex including foundational influence. Variational climate always leads to the variety of soybean production; crude oil was the pilot of worldwide commodities leading to variety of freight and then the price of soybeans. Financial index such as Dollar index influences the price of soybeans, either and so on. Facing to the market which comprise profit and lose and the uncertain complex of soybean price, the hedge is extremely important if plants hope to gain steady profit and under-controlled risk. Futures market can avoid risk. It is helpful to form rational prospect of price and reduce the difference between actual lose or profit and estimated lose or profit, which prevents from price risk. Because the physical price and futures price are affected by the same economic environment, the difference between the price of two markets will disappear finally. Therefore, the crashing plants may make use of hedging to transfer the risk of soybean price. The hedging includes long hedging and short hedging. In case, you need to buy cargo and worry about the rising price, the long hedging should be used. If you are a physical owner and worry about the price will decrease, you'd better execute short hedging. The relative products of crashing soybean are soy oil and soy meal. Thus, they relate to each other tightly for which plants could make use of their relationship to hedge. This article explains how to make use of soy meal to hedge, make use of soybean, soy oil and soy meal to hedge, and how to hedge between DCE and CBOT. On one hand, these ways lock the cost and lock the difference between cost and sales price, namely, the profit, on the other hand. The concept of Basis is introduced. Basis is difference between physical price and future price. Although the risk of basis is obviously less than the risk of price, the variety of basis plays an important part on the effect of hedge. You'd better focus on the variety of basis if you want to make a good job on hedge. In the article, the relationship between the long hedge and short hedge proves the close relativity between hedge effect and basis variety. Decreased basis is good for long hedgers and increased basis is favorable for short hedgers.As to the application of hedge, many crashing enterprises misunderstood. They make themselves as speculators who will give up part or all hedge when they met the possibility of profit. When they bought or sold ,they did not comply with the correct steps of hedge but sold or bought back the futures or even do some non-hedged positions just because the profit. They emerge themselves to the market risk. These enterprise should rebuilt a serious of correct idea abut hedge. The purpose is avoiding market risk. At meanwhile, the insight of foundational aspects should not be omitted, and the latest policy and management, as well as the report. The plants may use the sight of speculation to execute but not execute the speculation. The crashing industry should not the speculators in the market for ever. Moreover, the crashing enterprises should strengthen the risk management and control the proceeding and fund movement seriously. The inside management are ought to enhanced and a risk management team should be founded and make every hedge plan. The crashing enterprises should study the ways of hedge and understand the market, the capacity of plants as much as they can. Facing to the risk of soybean market, you can be the winner if you use the right way and hold the right mind with persistence. |
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