Chapter 149: Liquidation
20 years, July 23rd.
The night when a large-scale downy mildew outbreak occurred in North American soybeans.
Britain.
London Stock Exchange.
David looked at the prices of soybeans and soybean meal on the market and saw that they were soaring. His hands were shaking. He no longer dared to place a short order:
"Quick, sell all the short positions..."
“It’s too late!”
In fact, ABCD had secretly informed David and others, but they were still a step too late. The bullish forces in the market were like a dam bursting in today's offensive.
David, who was answering the phone just now , watched the prices of soybean and soybean meal futures on the market skyrocket.
In less than ten minutes, the price soared 2.3 times, and the upward trend has not stopped.
Other financial investment institutions and speculators, after a moment of shock, frantically used all their connections to gather information.
Soon, many institutions learned that North American soybean harvest might fail this year.
Now, these financial institutions and investors seemed to be sharks and piranhas that smelled blood, and they frantically went long on soybean and soybean meal futures. Even the futures prices of corn, wheat and rice skyrocketed.
It seems that as major international grain traders, ABCD will benefit greatly from the surge in soybean and grain prices.
But in fact, ABCD was almost vomiting blood at this time.
Because they went bankrupt.
Due to too many high-leverage short positions in soybean and soybean meal futures, the bottom line of price fluctuations is that soybeans can only rise by 15% at most. Now the price of soybean futures has soared to nearly 300%.
If they don’t get liquidated, who will?
Within just over ten minutes, ABCD lost tens of billions of US dollars in the international futures market.
Cargill and Bunge suffered the heaviest losses.
What's even more frightening is that the delivery period of soybean futures will expire next month. Now there are 33.72 million tons of futures orders in the futures market that will expire in August and September.
No matter how the futures price fluctuates, ABCD must have soybeans and soybean meal delivered at that time.
But the problem is that North America is one of the regions with the largest soybean production in the world. If the harvest suddenly fails, South American and Russian soybeans have already been booked by Chinese buyers.
If ABCD fails to deliver 33.72 million tons of soybeans and soybean meal, it will face default.
For example, Luzon purchased 6.3 million tons of soybeans from ABCD through the channels of Xiangjiang and Sing Tao, and is preparing to promote the diversification of edible oil and feed channels.
The maximum penalty for this transaction was 1.3 times the contract price at that time was US$330 per ton, and the total contract transaction amount was US$2.079 billion.
Moreover, this is a long-term contract, supplying 6.3 million tons per year for a total of 5 years.
If the contract is breached, ABCD will need to pay nearly 600 million US dollars in compensation this year.
In addition to this, Sapiens has also used the names of several European listed companies to place orders of tens of millions of tons with ABCD on the grounds of developing artificial meat, plant protein, feed and biofuels.
That is to say, this time ABCD cannot find enough soybean spot, so they will not be able to make any profit in the soybean spot market.
Financial markets are very real.
A group of international investment giants will not care about ABCD's heavy bleeding. They only care about their own pockets and even hope that ABCD will continue to bleed.
The impact of the margin call is a surge in soybean and grain futures prices.
At the end of the day.
In the international futures market, the increases in various bulk agricultural commodities were very exaggerated, with soybeans increasing by 327%, soybean meal increasing by 272%, corn increasing by 127%, wheat increasing by 108.3%, and rice increasing by 105.7%.
Although ABCD reduced some of its losses in the futures market through reverse operations, it still lost more than 13.5 billion US dollars on that day.
David's Louis Dreyfus Company lost 1.8 billion US dollars, and he and the entire futures trading department employees fell into silence.
It's so tragic.
Louis Dreyfus' profit this year was estimated to be only a few billion US dollars, but today its profit for this year evaporated in an instant.
"The company has convened a board meeting. Everyone should be mentally prepared!" David said dejectedly.
…
If Louis Dreyfus suffered heavy losses.
ADM, Cargill and Bunge suffered serious injuries.
After all, Louis Dreyfus has no soybean industry in North America; it just got ripped off in the financial markets.
However, ADM, Cargill, and Bunge have a large number of soybean farms, oil mills, feed mills, plant protein extraction plants, etc. in North America.
The executives and boards of directors of the three companies held an emergency meeting overnight.
Among them, Cargill, which was not listed, was better off, at least it did not need to explain the situation to stock market investors, but they also suffered heavy losses.
Cargill's chairman, William Wallace Cargill, Jr., looked at President Wade with his eyes almost blazing with anger: "Tell me how much money was lost?"
"4...4.3 billion..." Wade's voice was trembling.
Bang! Little William slammed his fist on the oak table, his face as red as a pig's liver, and roared crazily: "4.3 billion! How much is the company's profit this year? In addition, the contracts in August and September are expiring. How are you going to solve it?"
"Chairman, there's nothing I can do. No one expected that there would be such a serious outbreak of soybean downy mildew." Wade obviously didn't want to take the blame.
Little William's face turned even redder: "I want to hear how you solve the problem and reduce the losses, not your excuses, understand?"
All the executives looked down at the documents in their hands like ostriches, and no one wanted to speak.
No one present is a fool. With such a huge loss and production gap, and they don't know magic, it's too late even if they replant now.
Cargill's soybean inventory in North America is 15.37 million tons and in South America is 12.39 million tons, all of which are to be delivered to customers or for the company's own factories to need.
Of course, there is another way now, which is to buy up soybeans from Eastern Europe and Russia and use this part of the soybeans to deliver to customers.
However, the spot price of soybeans has now exceeded US$530 per ton. Instead of purchasing at this price, it is better to just pay the penalty for breach of contract.
This is also one of the reasons why the executives present did not dare to speak out. The problem is obvious: either purchase soybeans from other regions to fill the gap, or directly breach the contract and compensate customers.
Little William felt tired.
Suddenly, President Wade thought of a solution: "Chairman, maybe we can make up for it from other places."
"What method?" Little William asked quickly.
Wade explained: "Do you remember the food war in Luzon ? I estimate that Luzon's food inventory will not exceed 5 million tons. In addition, due to the continuous suppression in the past two quarters, their domestic rice and corn planting areas have been reduced a lot. Now I think we can launch an attack in advance."
"Luzon? Food? Isn't the plan to start next year?" Little William obviously knew the details of the plan.
Wade shook his head: "Next year is too late. International rice prices are out of control now. Although the effect will be worse if we start earlier, we have no other choice now!"
After thinking for a while, little William also discovered the problem.
Previously, ABCD had maintained a low-price dumping strategy in order to suppress international rice prices, but now the soybean crash has caused a chain reaction in the entire grain market.
After all, soybeans are an important raw material for edible oil and feed. Once the price soars, buyers will naturally look for alternative products.
This will in turn drive up the prices of rapeseed oil, sunflower oil, palm oil, corn, wheat and rice.
This invisibly undermined ABCD's low-price rice strategy.
If we don't take action now, Luzon's rice planting area will increase again with just a little guidance, making all the previous efforts in vain.
