February 12, 2011

 

Grain prices in Asia may ease

 

 

Asian grain prices may ease early next week as investors take profit on long positions and wait for fresh leads from an industry conference in Singapore.

 

Fundamentals remain firm, but a downward correction is still expected because most of the price-supportive news has already been factored in, according to a Singapore-based executive at a global trading company.

 

Several major grains traders will be gathering in Singapore for a conference Wednesday (Feb 16) and Thursday (Feb 17) that will focus on managing price volatility and production risk.

 

Another trader said that speculators tend to buy on rumours and sell on facts, and will likely take profit on gains made after a key US government forecast this week indicated declining corn stocks. For traders, now is the time for long liquidation, he noted.

 

A monthly demand-and-supply report of the USDA released Wednesday (February 9) confirmed fears of traders of the declining stockpiles of corn.

 

The USDA lowered its projections for the country's remaining corn stocks at the close of the marketing year on August 31 to 17.14 million tonnes from 18.92 million tonnes, the lowest level for ending stocks in around 15 years. The US is the world's largest exporter of corn, while two of the largest importers, Japan and South Korea, are in Asia.

 

The USDA did not make significant changes to stockpile estimates for wheat and soy.

 

Grain prices have already peaked or are about to peak, Nobuyuki Chino, president of Tokyo-based trading company Unipac Grain, said.

 

Traders said they expect nearby-month corn, wheat and soy futures contracts on the Chicago Board of Trade to peak around US$7 a bushel, US$8.90/bushel and US$14.50/bushel, respectively. Corn is currently around US$6.95/bushel, wheat US$8.63/bushel and soy US$14.33/bushel. Prices of some grains have already started to ease, falling overnight on CBOT.

 

Traders said net long positions are expected to fall by the end of the month.

 

In the week ended February 1, speculative net long positions in CBOT wheat futures rose by 4,000 contracts to a record 25,000 contracts, up 18% from a week earlier, according to US Commodity Futures Trading Commission data.

 

Speculators added a net 21,000 contracts in corn, taking net longs to 350,000. Speculative net longs in soy increased 10% to 160,000 contracts and open interest hit a record, while speculative net longs in soyoil rose a staggering 47% to 96,000 contracts.

 

The South American soy harvest is due by the end of this month, and may put downward pressure on Asian import prices.

 

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