February 17, 2005

 

Bulging grain stocks may prompt Asia to move slowly

With world feed grain prices dropping everyday, Asian buyers are increasingly facing a dilemma - whether to strike deals now or wait for still lower prices.  This may slow business volumes in Asia in the near term as buyers from China to the Philippines keep a close watch on harvests, export offers and crop developments across the globe.

 

Bulging corn supplies in South America and the United States have more than offset China's lack of exports because of its dwindling domestic grain stocks. Aggressive Argentine soymeal offers have filled the vacuum created by the paucity of offers from India.

 

With bird flu fears still lingering over most Asian countries, buyers in this region are cautious about demand with the prospects of mass slaughter of birds in any country hit by the disease.

 

"The price outlook is bearish and Asian importers think there is still more downside for prices," said Vijay Iyengar, managing director of Agrocorp International Pte Ltd, a Singapore-based commodities trading firm. "They have a lot of breathing space."

 

Exactly a year ago, Asian feed ingredient importers were scrambling to pick up every available cargo that could be used as an alternative to corn, which rose to 6-1/2-year highs on world markets in the absence of Chinese exports.

 

They were desperate to pick up tapioca, palm kernel and even dry distiller grain, a by-product of ethanol production from corn, at a time when the landed cost of US corn in Asian destinations was close to US$200 a tonne.

 

"But now, Argentine corn is available at US$125 a tonne and people are still not interested," said a Singapore-based trader. "Some buyers have covered their needs but many think prices could fall below US$120. Even U.S. supplies are improving."

 

Concerns about huge U.S. and global feed grain stocks continue to cap any market recovery at the Chicago Board of Trade. On Wednesday, March corn closed 3 cents lower at US$1.97 per bushel, dipping to a low of US$1.96-) - just below key support at its 20-day moving average of US$1.97.

 

And to add to the supply side, industry analysts are estimating that the threat of soy disease and other crop problems might see many US farmers shifting to corn this season.

 

After a long gap, countries like Malaysia and the Philippines might be stepping into the market soon to buy some soybeans for April shipments as they were running low on stocks, traders said. They have been hold back purchases in the hope of better prices.

 

"They might be buying a cargo each if prices are attractive," said one trader. "With China not in the market for soybeans in a big way, the upward pressure on prices is not there to a great extent," said one trader.

 

China, the world's top soy importer, has been shying away from buying expensive March cargoes from the United States amid persistent talk of bird flu in the south, dousing hopes for a strong recovery in poultry demand.

 

Crushers in China are waiting for low-priced South American supplies as farmers in Brazil have started harvesting yet another record crop, offers from which would be available for shipment after late March.

 

And also adding to the bearish trend is talk about the possibility of India exporting wheat as the South Asian nation is heading towards harvesting a bumper crop of about 75 million tonnes, about three million tonnes higher than last year.

 

"India might export some lower grades of wheat from the old crop after the new crop is in. "Some buyers in countries such as the Philippines might buy it for feed," said one trader.

 

Feed wheat is a substitute for corn in animal feed.

 

Sky-high freight rates have been the most worrying factor for Asian grain buyers in recent months but importers are surely finding new ways to beat that and are therefore not rushing into deals in the fear of a further rise in shipping costs. While some are bringing in soymeal in containers from the United States, many buyers are teaming up to bring in combined cargoes from Argentina.

 

"Wheat, corn and soymeal - they are all offered at very competitive prices out of Argentina. A buyer who wants only wheat from Argentina is combining his cargo with somebody who is looking for soymeal from the same origin," said one Hanoi trader.

 

While Asian buyers have recently bought wheat from Argentina at less than US$180 a tonne, including cost and freight, they have sealed deals for Argentine soymeal at US$235.