March 1, 2010

 

Asia Grain Outlook on Monday: Technical buying, short covering may up prices

 

 

Asian grain prices will likely be supported this week on the back of technical buying and short covering, trade participants said Monday.

 

"Even though overall fundamentals are weak due to ample supply, technical buying may provide at least temporary gains for the grains market," said a Singapore-based executive at a global trading company, adding that the market is technically oversold and ripe for a recovery.

 

March contracts on the Chicago Board of Trade are due to expire next week, which has prompted some short covering that could support prices through next week, a Tokyo-based analyst said.

 

The May wheat futures contract at CBOT may rise to around US$5.30 a bushel and the soybean contract to US$9.80/bushel over the next few days, he added.

 

The May wheat contract ended 15 1/2 cents, or 3.1% higher Friday, at US$5.19 1/4 a bushel. May soybeans settled 11 cents, or 1.2%, higher Friday at US$9.61/bushel.

 

However, the recovery may be short-lived, traders said, as many investors who are covering their March shorts are selling again into the May contract.

 

Investors are also expected to track U.S. weather for fresh leads.

 

"With fairly wet weather mimicking what has happened in recent years, small worries are starting to form that spring plantings could see delays," ANZ Banking Group said in a research report.

 

If weather concerns continue, it could provide impetus for a decrease in short positions on CBOT, ANZ noted. Investors have built up large speculative short positions in soybean, corn and wheat futures on CBOT in recent months.

 

Corn prices are expected to rise on short covering in the run-up to the expiry of the March contract on CBOT and reflecting gains in the crude oil market that could spur demand for ethanol.

 

Crude oil prices have been in the US$80-a-barrel region for more than a week and have mostly held above US$70 since August.

 

Traders expect the CBOT May corn contract to move between US$3.55 and US$4.00/bushel over the next two weeks. May contract ended at US$3.89/bushel on Friday.