February 22, 2011

 

Asian grain prices may drop on profit-taking

 

 

Asia's grain prices is expected to be lower this week as investors liquidate longs prior to the Outlook Forum of the USDA which is held annually.

 

This is a good time to lock in physical deals as prices are off the 30-month highs they hit earlier this month, said a Singapore-based executive at a global trading company.

 

He said buyers are still cautious in their purchases because they expect a further decline in prices, particularly of wheat and soy.

 

Another trader said the markets were overbought for quite some time and this has prompted technical selling for the past few days.

 

The nearby-month March wheat futures contract on the Chicago Board of Trade ended 3.4% lower Friday (Feb 18) at US$8.22 1/4 a bushel.

 

March corn futures ended US$0.03 lower at US$7.09 3/4 a bushel, while March soy closed US$0.36 1/2, or 2.6%, lower at US$13.68 a bushel.

 

Most traders expect a further downward correction and put immediate psychological support for wheat, corn and soy at US$8.0, US$7.0 and US$13.40 respectively.

 

"Corn is mostly moving sideways due to demand for exports in the US but there is a large downward pressure on wheat and rice," said Koname Gokon, deputy general manager at Japanese commodity brokerage Okato Shoji Co.

 

Last week, the USDA projected an increase in planted crop land in the US in 2011 by 10 million acres to 255 million acres for the eight major field crops.

 

Prospects of acreage expansion are expected to be a key subject of discussion at the USDA's annual Outlook Forum later this week.

 

Traders want to lock in their profits ahead of the USDA forum, said Hiroyuki Kikukawa, general manager for research with Nihon Unicom Inc., a Japan-based commodities brokerage.

 

The USDA has forecast that US crop plantings will be marginally higher than even the 2008 level of 253 million acres and it has projected a larger area under almost all major crops.

 

The fact that plantings did reach such high levels around three years ago and fell significantly thereafter indicates that there is again an upside potential for acreage.

 

The supply for corn will continue to be tight until at least September, but the prices of grains have mostly peaked for the time being, said Nobuyuki Chino, president of Unipac Grain, a Tokyo-based commodities trading company.

 

He said the huge upcoming crop of soy from Brazil will also weigh on the market.

 

In Argentina, the crop situation has improved significantly due to rains ahead of the harvest, said Freddy Pranteda, Director of South American grain trading company Cosur SA.

 

Corn output will likely fall to 19.5 million tonnes this year from 22 million tonnes last year, Pranteda said.

 

He said Argentina's output of soy may fall to 48 million to 49 million tonnes from 55 million tonnes.

 

Earlier, market participants were concerned that Argentina's corn output could fall to 14 million tonnes and soy output to below 44 million tonnes due to dry weather.

 

In wheat, China is hit by a severe drought, but the situation is gradually improving. Traders said latest reports are that drought-affected areas are around 6.1 million hectares, down from 6.71 million hectares last Tuesday.