Players secure 2027 basis contract for soybean meal for profit locking

After a subsided market post Labor Day holiday, Mysteel recently observed a combined daily soybean meal transaction volume of as much as 2 million tonnes at crush plants on May 8, 2026, of which 1.963 million tonnes were forward basis contracts for May-July 2027, a surge of 1.883 million tonnes from the previous trading day.

Since March this year, Brazilian soybeans for March-April 2026 shipment have shown favorable theoretical crushing margins, peaking at around Yuan 500/tonne. Though these margins have recently narrowed, they remain elevated around Yuan 400/tonne, providing ample profit cushion for crush plants to pre-sell soybean meal basis contracts.

At the same time, a favorable window has opened for U.S. soybean. Following the escalation of Middle East tensions, U.S. soybeans prices rose alongside crude oil. However, with the recent easing of tensions in the Strait of Hormuz, U.S. soybeans have experienced a rare pullback.

On May 7, U.S. soybean futures hit a phased low of 1,182.5 cents per bushel. For crush plants, this presented an ideal opportunity to lock in forward crushing margins, that is, selling forward basis contracts when soybean futures are relatively low allows them to hedge against future price volatility, accelerate cash flow realization, and reduce inventory and capital tie-up pressures. Therefore, the recent concentrated sale of May-July basis contracts for 2027 was essentially a proactive, profitlocking strategic move.

While crush plants are guided by profit margins, the appetite of midstream and downstream players for large forward basis positions signals their confidence in a built-in price safety margin.

The May-July 2027 basis contracts sold on May 8 were priced in the range of Yuan 180-240/tonne under M2701, which translates to a flat price of approximately Yuan 2,846/tonne based on the closing price of M2701 soybean meal futures contract.

In comparison, the May-July basis contracts sold during the same period last year were priced at around Yuan 60/tonne over M2605. Using current spreads (M2701-M2605 at Yuan 270/tonne and M2605-M2609 at Yuan -210/tonne), the equivalent would be approximately Yuan 70 over M2605 or Yuan 140 under M2609.

Relative to last year's May-July basis price of M2605+60, yesterday's contracts did not show a clear basis price advantage; rather, the margin of safety may be reflected more in the flat price and the flexibility of basis washing.

Furthermore, the foreign-owned crush plants that sold large volumes of next year's May-July basis contracts are also offering soybean meal accumulator options, providing an additional layer of price hedging flexibility for midstream and downstream enterprises. If prices rise in the future, buyers can directly lock in a low cost by fixing the price; if prices fall, they can adjust positions through contract rollovers or basis washing, keeping risks relatively manageable.

Moreover, although current domestic soybean meal spot prices are relatively weak, the cost of the May-July basis contracts purchased by midstream and downstream enterprises last year was typically around Yuan 2,700/tonne, and those positions remain profitable today. This successful experience has enhanced market confidence in forward basis pricing. Leveraging past success and the current lowprice advantage, downstream enterprises are willing to absorb large volumes of May-July basis contracts for next year at this time.

In summary, last Thursday's massive transaction volume of 1.96 million tonnes in soybean meal forward basis contracts was not a blind impulse by any single party, but rather a "mutually reinforcing move" driven by the respective interests of crush plants and midstream/downstream enterprises.