Traders ditching paper positions pressures physical Ukraine corn

9 Nov 2021 | Masha Belikova

Ukraine's physical corn market could be set for further price falls as traders pulling out of long positions in its related paper market drags cash prices lower, sources have told Agricensus Tuesday.

Indications in the so-called paper market - essentially a derivative contract that is traded around the physical market - have fallen sharply as traders abandon long positions that benefit them when prices are moving higher. 

However, with global corn prices sliding and Ukraine's harvest now underway, investors are having to sell before they have to execute on the contracts and are forced to either wash out the trade or secure physical supply. 

That dynamic has seen paper values fall hard, opening up a $7/mt difference between the physical cash market and its related - and now markedly cheaper - derivative paper market. 

Physical corn offers have dropped by at least $4/mt since the start of November to currently stand at around $276-$280/mt FOB for a handy in a panamax port (HIPP).

That has come amid reports of trades being concluded on the paper market at the end of last week at around $274/mt on an FOB equivalent.

Since then, paper offers have gone even lower with the lowest heard at 130 cents over December for December loading, equating to around $268/mt FOB Mykolaiv.

That is almost the level where the corn was traded on the domestic market, and means there is a gap of up to $7/mt between the paper market values and the physical market. 

Trade sources said that the current big spread has appeared because traders are trying to close paper long positions to avoid executing or washouts, and are forced to lower their offers forcing the physical market to follow

“If it appears hard to set up a 25,000 mt execution, it might be easier to drop a few dollars against the market to close the position,” one trader explained, referring to the standard volume for paper trades in Ukraine.

“Until the paper longs are gone, it's hard times for us physical guys,” a second trader said.

Some trade sources expect the pressure to continue until all long positions are closed out, but some are expected to hold out amid hope that falling cash prices will spark a return of Chinese demand to add support.

Later in the day, the release of the USDA's monthly update to its influential Wasde report ensured futures ended firmer amid large gains on the soybean contract.