January 27, 2011

 

Asian grain prices may partly decrease on slow demand

 

 

Asian grain prices may shrink in the next few days due to slow demand ahead of the Lunar New Year holidays and profit-taking in futures stock exchange.

 

After a recent rally to multiyear highs, the market is ripe for liquidation of long positions. Supply-demand fundamentals and the medium term outlook remain firm.

 

"Prices have risen in double-quick time and even though fundamentals are strong, some downward correction is warranted," said a Singapore-based executive with a global trading company.

 

The recent rise in net speculative positions also points towards a potential correction, he said. The latest US Commodity Futures Trading Commission report indicates that speculators have jumped back into agricultural markets.

 

Speculators were aggressive in building net long positions in corn and soy on the CBOT during the week ending January 18. They added 39,000 contracts to their net long positions in corn. Net long positions in soy rose 11% from the previous week to 162,000 contracts, only 8,000 below the record set on November 9 last year.

 

Traders said some of these positions are now being liquidated.

 

CBOT March corn futures settled US$0.11 1/4 lower Tuesday (Jan 25) at US$6.44 a bushel. March soy settled US$0.30, or 2.1%, lower at US$13.74 1/2 a bushel. Traders expect corn prices to test US$6.20/bushel on the downside and soy US$13.40/bushel.

 

Asian physical trades will also be slow next week as many traders are expected to be away for the Lunar New Year holidays in China and other countries.

 

The likely correction may not be a sharp one, however, as tight supplies are enticing even those speculators who liquidate longs to buy them back again on dips.

 

In this situation, the downside is limited, said Hiroyuki Kikukawa, general manager for research with Nihon Unicom Inc., a Japan-based commodities brokerage.

 

Dry weather in Argentina and ongoing drought in parts of China are likely to stem any fall in grains prices, although scattered showers are easing drought conditions in parts of Argentina.

 

The market is particularly bullish for wheat. Milling wheat supply has tightened due to the floods in eastern Australia and prices are on the rise.

 

Hard red winter wheat for March delivery rose U$0.09 1/2, or 1%, to US$9.17 1/2 a bushel Tuesday (Jan 25) on the Kansas City Board of Trade.

 

CBOT March wheat futures closed US$0.03 higher Tuesday (Jan 25) at a 29-month high of US$8.38 1/4 a bushel. Most traders said prices are unlikely to fall below US$8.20/bushel this week.

 

The floods in eastern Australia have increased the supply of feed wheat, which may weigh on demand for corn, but has tightened supplies of milling wheat.