February 13, 2008

Asia Grains Outlook on Wednesday: Prices may fall on sell off in wheat

Grain prices may fall in the remainder of this week, as a sell off in Chicago Board of Trade wheat futures will likely affect corn and soybean prices.

Wheat futures, which set historic highs on all U.S. exchanges last week, have taken a sharp fall in the first two trading sessions this week, as exchanges increased the daily trading price limit to 60 cents from 30 cents and raised margin requirements.

The drop in wheat futures has affected momentum for corn and soybean futures too, which often track wheat movements and will likely be dragged lower as wheat seems likely to decline further.

Corn, wheat and soybean are locked in intense competition in the U.S. for farm acreage, and the need to secure land will support prices for all three crops.

In an analyst report Wednesday, the Commonwealth Bank of Australia said an "entire constellation of events came together to burst wheat's bubble". It added that since the supply squeeze is felt more acutely in spring wheat, which is traded on the Minneapolis Grains Exchange, the gains in futures prices will likely be localized in that exchange instead of spilling over to CBOT.

In Asia, the wheat buying picture is mixed. On Tuesday, Japan's Ministry of Agriculture sought 190,000 metric tonnes of wheat in a tender to be concluded on Thursday. Traders in Taiwan and Indonesia also said they will continue to buy wheat despite relatively higher prices.

However, wheat buying has been muted in South Korea, while South Asian buyers India and Pakistan have exited the market for now and are unlikely to import any wheat before April.