February 25, 2011

 

Asia grain prices to be subdued on weak futures

 

 

Asia's grain prices will likely be passive for the rest of the week on the back of profit-taking and technical selling in futures trade even as market participants await leads on acreage expansion from the monthly report of the International Grains Council.

 

Physical offers of wheat, corn and soy are being adjusted lower in line with the overnight decline in grain futures on the CBOT, and market players say it is a good opportunity to finalise deals because fundamentals are still strong and prices may move higher again.

 

"The recent decline in grain prices is on expected lines and prices may remain under downward pressure for the next few days," said a Singapore-based executive with a global trading company.

 

Traders said two weeks ago that prices had almost peaked and that a downward correction was on the cards due to technical selling and long liquidation.

 

Many investors who simultaneously trade across asset classes took short positions in the Euro in the forex market and bought up commodities such as grains, said Nobuyuki Chino, president of Unipac Grain, a Tokyo-based commodities trading company.

 

Chino, whose forecast this month of an impending decline in commodity futures has turned correct, said long liquidation by such investors is now dragging down prices, which may remain subdued for the rest of the month.

 

The prices of wheat, corn, soy, rice and oats all fell by their daily limits on CBOT Tuesday (Feb 22).

 

Most traders now put immediate support for nearby month CBOT corn futures contracts at US$6.50 a bushel, for soy at US$12.20 a bushel and for wheat at US$7.40 a bushel. The contracts are currently trading around US$6.65, US$12.93 and US$7.46, respectively.

 

The IGC plans to issue its latest report on demand, supply and plantings on Thursday and both analysts and traders expect projections of a significant increase in global acreage in 2011-12.

 

A fraction of land, which is kept uncultivated in the event of low prices, may be planted this year and when farmers tend to do so en masse, it can translate into significantly higher acreage, said Jay O'Neil, a senior agricultural economist with Kansas State University.

 

Profit-taking ahead of the annual forum of the USDA is also weighing on prices, said Hiroyuki Kikukawa, general manager for research with Nihon Unicom Inc., a Japan-based commodities brokerage. The forum is scheduled for Thursday and Friday.

 

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.

 

The economic message has been sent to the farmers worldwide to plant on more land and if weather is favourable, the additional hectares will undeniably contribute to higher output, said O'Neil.

 

Brazil is already reaping a bumper soy crop.

 

South American harvest of corn and soy is easing the pressure of physical demand on the US and may keep a check on prices, said Koname Gokon, deputy general manager at Japanese commodity brokerage Okato Shoji Co.