That's the way I read it. The buyer needs to make the seller whole. If today's price is lower than the contract price the buyer makes up the difference. If today's price is higher the buyer could get out of the obligation without much consequence. Either way it creates unused inventory and adds to the available supply which generally would have a negative impact on future prices. Do I have this right?
If today's price is higher, why would the buyer want to cancel the purchase? If the cargo is not needed, wouldn't he do well to re-sell it and realize a profit, in what is sometimes called a reverse crush?
I've always viewed the Chinese cancellations as an attempt to manipulate price. I suppose the calculation from their point of view is that even though there may be a penalty to pay when defaulting, the price drop in the market from the news of cancellations means they may be able to re-purchase the soybeans at a later date for less, with the net result being in their favor.
