January 24, 2008                                                            

  

Cheaper freight rate and lower grain prices may tempt Asian buyers, or not

 

 

Despite a drop in CBOT prices and cooling freight rates, it may take a while before Asian grain buyers, turned off by the high prices of US grains would come back.

 

CBOT grain prices have reached record highs in recent weeks but dropped sharply after the US Federal Reserve, in a bid to stave off a recession, announced a cut in interest rates which caused the US dollar to stray lower. The lower US dollar was seen to benefit foreign buyers of US grains.

 

Despite the euphoria and favourable outlook over record grain prices recently, US investors have been liquidating their positions as recession fears prompt more to flock to the safer havens of cash, market analysts said.

 

This comes as freight rates, after setting record highs in late 2007 cooled off.

 

The spot ocean freight cost for Panamax cargoes delivered to Southeast Asia is now down 40 percent from November, and in January, the U.S.-South Korea Panamax freight cost has fallen 20 percent.

 

Still, Asian buyers may be in no hurry to jump into the markets right now despite tight supplies. Analysts said many would be waiting for the June harvest in the US before making purchases.

 

However, in China, traders are likely to leap at the opportunity to buy cheaper grains, given the huge volumes its crushing industry consumes. 

 

Last week, the nation, which imported more than 30 million tonnes of soy last year, doubled its soy orders from the usual 3-4 cargoes to 10-11. The cargoes were all from Brazil or Argentina. Argentina is closing the gap with Brazil as soy imports from Brazil dropped 9 percent to 10.6 million  tonnes and that from Argentina  rose 33 percent to 8.3 million  tonnes last year, based on figures from China Customs. Imports from the US saw a 17-percent rise to 11.5 million tonnes. However, in December, possibly due to record prices and freight rates, imports from the US dropped 26 percent to 1.3 million  tonnes.   

 

Meanwhile, it is not clear what China's recent moves to curb grain exports by imposing tariffs would have on Asian buyers and whether that would push them back towards the arms of US and South American producers. China at the start of the year imposed a 5-percent tariff on exports of the major grains as massive grain exports were in danger of stoking inflation further.

 

South Korea and Japan's import of Chinese grains rose sharply last year. Wheat exports to South Korea  rose 143 percent to 986,200 tonnes while exports to Japan rose 222 percent to 16,947 tonnes compared to 2006, according to  figures from China's customs.

 

South Korea's import of Chinese soymeal also rose 190 percent to 138,356 tonnes while Japan's import of Chinese soymeal rose 87 percent to 572,401 tonnes compared to 2006.

 

In 2007, China's corn exports to both countries also rose more than 60 percent compared to 2006.