January 31, 2006

 

Asia Corn Outlook: Premiums to gain; demand, futures

 

 

Premiums of grains delivered to Asia may rise in the week ahead, due to healthy demand from countries such as South Korea and Japan, but also on expectations of gains in U.S. corn and wheat futures.

 

Both wheat and corn futures were mostly higher on the Chicago Board of Trade in the week to Monday, led by fund buying for corn and good exports for wheat.

 

Traders expect more gains in corn and wheat cash and futures prices in the U.S., on strong fundamentals and fund buying.

 

"Japanese traders expect cash basis prices for U.S. corn to rise," said a trader in Tokyo.

 

Meantime, corn imports by Asian buyers are expected to pick up in the next few weeks as traders in Japan and South Korea cover their April and May requirements.

 

For wheat, Japan's federal agriculture ministry is likely to announce its weekly tender for imported wheat later Tuesday.

 

Markets in China and Taiwan will be closed through the week because of the Lunar New Year holidays.

 

However, a South Korean trader said Chinese traders have very little room to export much corn, as most of the export quota of 4 million tonnenes, which expires at end of this month, is already sold out.

 

"The federal government hasn't issued any fresh export quota, so there's not much corn expected to come out of China over the next few months," said the trader.

 

The Chinese government had late last year announced a quota for exporting 4 million tonnenes of corn by the end of February 2006 along with a subsidy of RMB140 for each tonnene exported, according to several news reports.

 

Meantime, traders in Asia continue to expect a further drop in spot ocean freight rates, which have been falling steadily for several weeks.

 

Traders said that while spot ocean freight rates have been steady over the past week, there is still room for a decline in freight rates, on overcapacity in the freight industry besides falling traffic of iron ore to China.

 

In other news, a recent report of the U.S. Department of Agriculture has said the current lack of snow cover in the Yellow River basin in China is not unusual but could become a problem for China's wheat crop if extremely cold weather moves into the region.

 

The first USDA estimate for China's wheat area and production will be announced in May.

 

Winter wheat accounts for more than 90% of China's total wheat output. The current winter wheat crop was planted in September-October 2005 and will be harvested in May-June 2006.

 

Meanwhile, India's federal government has said the country's wheat output is expected to total 75.5 million metric tonnenes in 2006, and market arrivals from the upcoming harvest may begin in the third week of March.

 

The country produced 72 million tonnenes in 2005.

 

The federal government's optimism about a good 2006 wheat harvest stems from a cold wave that swept across the country earlier this month and is considered beneficial for the wheat crop.

 

But agricultural scientists cautions that rains across northern India, which help with the proper growth of the wheat crop, has been limited so far.

 

India's wheat crop is sown from November to January while harvesting begins in March.