February 10, 2011

 

Asian grain prices may go beyond highest levels

 

 

For almost 30 months, Asian grain prices are at their highest levels, but they are seen to peak soon and a downward correction is expected within the month.

 

Concerns over weather remain, specifically with the lingering drought in China, but the rally of the past several weeks may run out of steam as profit-taking is likely to trigger a technical correction and the role of speculators comes under scrutiny, trade participants said.

 

Most traders expect nearby-month corn, wheat and soy futures contracts on the CBOT to peak around US$6.90 a bushel, US$8.90/bushel and US$14.50/bushel, respectively, about US$0.10 a bushel above current levels.

 

Investors have been piling into long positions for several months now, but it is about time for long liquidation, said Nobuyuki Chino, president of Unipac Grain, a Tokyo-based commodities trading company.

 

The plans of the Group of 20 countries to monitor the role of speculators in pushing up prices of agricultural commodities may prompt many of them to close their positions or to refrain from building as many new positions.

 

In the week ending February 1, speculative net-long positions on the CBOT rose by 4,000 contracts to a record 25,000 contracts, up 18% over the week, according to data from the US Commodity Futures Trading Commission.

 

Speculators added a net 21,000 contracts in corn, taking the net longs to 350,000. Speculative net longs in soy increased 10% to 160,000 contracts and open interest is at a record level.

 

Speculative net longs in soyoil rose a staggering 47% to 96,000 contracts.

 

Unless USDA comes out with significant bullish changes in its monthly report on global demand and supply of grains, at least a near-term downward correction in prices is in the cards, said a Singapore-based executive with a global trading company.

 

The report is due to be released at 1330 GMT. Usually, there aren't any significant changes in the February report, as most winter plantings in the Northern Hemisphere are in a dormant stage and crop assessments are difficult.

 

Nevertheless, some traders believe that the USDA may revise lower the US closing stocks for corn in the year to August because of higher use of the grain to make ethanol. The US is world's largest exporter of corn.

 

Some tightening of wheat stocks can't be ruled out due to recent brisk buying in the Middle East. However, overall wheat inventories still remain comfortable with a global stocks-to-usage ratio of around 26.8%. A ratio of anything around 25% or higher is considered healthy by analysts.

 

Soy supply is likely to rise with the South American harvest is due by the end of the month, which may put downward pressure on Asian import prices.

 

At current high prices, growers in South America may be selling aggressively, adding to the physical supply, Chino said.

 

China's major wheat-growing regions are suffering from an extended drought, but analysts said similar problems were faced last year, when the country's wheat imports rose above one million tonnes. Any further increase in imports is difficult to forecast at the moment, a grains analyst in Sydney said.