January 23, 2006

 

Asia Corn Outlook: Premiums may fall on low freight

 

 

Premiums of grains delivered to Asia may fall in the week ahead as U.S. futures for corn and wheat are not expected to rally, besides falling spot ocean freight rates.

 

While U.S. corn futures fell most of last week, wheat futures had a mixed run.

 

But demand outlook for both wheat and corn remains quite bearish, with some analysts saying any rally in the next few months looks unlikely for either commodity. Besides, spot ocean freight rates have been easing for the past few weeks.

 

Two main reasons for falling ocean freight rates are declining Chinese traffic of iron ore and overcapacity in the freight industry.

 

A trader in Seoul said spot ocean freight rate from the U.S. Gulf to South Korea fell $3/tonne over the week to $34/tonne, at present.

 

Other traders said freight rates from the U.S. to Japan and Taiwan also fell over the week.

 

Widespread buying and stockpiling last week ahead of a string of holidays in the region will also limit demand from Asia in the coming weeks, traders said.

 

All major buyers - Japan, Taiwan and South Korea - were active in the market last week.

 

Taiwan Sugar Corp. bought 20,000 metric tonnes of U.S.-origin corn and 15,000 tonnes of U.S-origin soybeans from trading house Cargill in a tender last week.

 

South Korea's Major Feedmill Group bought 110,000 metric tonnes of optional-origin feed corn from trading houses ADM and Wilmar in private negotiations.

 

South Korea's Daehan Flour Mills bought 20,800 metric tonnes of US No.1 wheat from trading house Toepfer.

 

South Korea's CJ Corp. and Dongah Flour Mills Ltd. also bought a total of 20,000 metric tonnes of U.S. No. 1 wheat from trading house Cargill.

 

In the biggest wheat purchase deal last week, Japan's Ministry of Agriculture, Forestry and Fisheries bought 115,000 metric tonnes of milling wheat from the U.S., Canada and Australia.

 

A trader in Seoul said this week not much trading activity in corn is expected in South Korea as traders are mostly well-stocked.

 

However, the South Korean Major Feedmill Group may tender to buy 55,000 tonnes feed corn this week.

 

In Taiwan, not much trading is expected this month as traders prepare for the Lunar New Year holidays.

 

Australia's AWB Faces Inquiry Into Iraq Wheat Deal

 

Meanwhile, Australian wheat exporter AWB Ltd. remained in the limelight amid an ongoing inquiry into allegation that the company paid kickbacks to the former Iraqi regime of Saddam Hussein.

 

The Australian government-appointed Royal Commission started hearings on whether AWB breached Australian law through its dealings under U.N's Oil for Food Program. At last week's hearings John Agius, the counsel assisting the inquiry, produced evidence suggesting that AWB officials may have known they were paying kickbacks to Saddam's regime and helped devise elaborate schemes to disguise such payments, which breached U.N. sanctions against Iraq.

 

Moreover, the current controversy surrounding AWB is also leading to speculation about whether the company will continue to enjoy its status as Australia's monopoly wheat exporter.

 

In the longer term, however, Pakistan may import 400,000-500,000 metric tonnes of wheat in 2006 despite an expected bumper wheat crop this year, said Mohammad Yusuf, chairman of Pakistan Flour Mills' Association's Karachi chapter.

 

"I am quite confident about a great wheat harvest, but imports will continue as long as the government sells its procured wheat at high prices," said Yusuf.

 

Yusuf said imported wheat from Russia now costs PKR10,500/tonne while the government is selling wheat at PKR11,500/tonne.

 

Pakistan has so far imported 400,000 tonnes wheat since such imports were allowed in June 2005.