Ferruzzi soybean crisis

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The Ferruzzi soybean crisis, also known as the soybean crisis of 1989, had its origins in a drought in the Midwest the year before, which reduced soybean yields. Early in 1989, Central Soya, a subsidiary of the Italian firm Ferruzzi, amassed a large physical holding of soybeans and took large long positions in the May 1989 soybean futures contract. As of May 16, Ferruzzi held 16.2 million bushels of May soybean futures. It was forced to reduce its position to 3 million bushels after the Chicago Board of Trade revoked its status as a hedger. But instead of only offsetting its May position, Ferruzzi rolled the position forward into July. By July it had managed to dominate the soybean market.

The CBOT declared a market emergency on July 11 and revoked Ferruzzi's hedging status again. It also ordered liquidation of at least 20 percent of futures positions over the next several days. This averted the crisis but led Ferruzzi traders in Paris to resign and Ferruzzi to file a lawsuit against the CBOT. The CBOT in turn imposed fines on Ferruzzi. Ferruzzi paid $2 million and dropped the lawsuit, but in 1993 Ferruzzi's chairman committed suicide and enormous losses at the firm were uncovered. [1]


References

  1. Understanding Futures Markets (page 83), By Robert W. Kolb and James A. Overdahl. Google Books.