January 7, 2008

Asia Grain Outlook on Monday: Rebalancing to hurt wheat, soybeans

Corn prices may rise in the week ahead, and wheat and soybean prices could fall, as funds are likely to rebalance their indexes this week on the Chicago Board of Trade.

U.S.-based commodity broker AgResource Company estimates index funds have to sell more than 40,000 contracts of soybeans and wheat, and secure 17,000 contracts of corn in rebalancing expected Tuesday.

In Asia, Chinese traders continued to buy soybeans at a moderate pace last week, booking three-four cargoes, said commodities analysis firm Shanghai JCI. It added that the pace of booking may quicken a little as crushers - anxious about further price gains on CBOT - are looking to book for farther months.

The international market is keenly watching the state of India's wheat crop, as sowing has largely concluded.

So far, the country has sown 26.6 million hectares with wheat bewteen Oct. 1 and Jan. 4, down from 27.5 million hectares in the corresponding period last year. Last year, India eventually sowed 28.4 million hectares to wheat, while the most optimistic government estimate for this year is 27 million hectares.

While the government is confident that productivity gains will offset the 1.4 million hectare shortfall, analysts and traders are skeptical. Weather forecaster Meteorlogix said that wheat areas in India have been generally dry so far, and would need additional rains from late January to February for proper development of the wheat crop.

Pakistan is also facing a severe wheat shortage, with local newspaper Daily Times reporting that long queues are forming outside grocery stores to buy wheat flour in the country's biggest city, Karachi.

Pakistan is likely to import more than 1 million tonnes of wheat over the next few months to cover the shortage.