March 1, 2011

 

Asian grain prices may pick up on physical buying

 

 

Asia's grain prices could be steady or possibly higher on the back of strong buying in the physical market, recovering from sharp falls last week.

 

Many speculators have liquidated long positions in futures markets over the last week, dragging down prices, and trade participants said the market is now set for a rebound.

 

"Both corn and wheat are likely to have a steady tone this week and there is upside potential," said Koname Gokon, deputy general manager at Japanese commodity brokerage Okato Shoji Co.

 

The upward trend may have already started.

 

Grain markets rallied strongly Friday (Mar 1) as funds and end users took the opportunity to buy back after a week of washing out long positions, ANZ Banking Group said.

 

Most traders now put the upside target at US$8.25 a bushel for wheat, US$7.45/bushel for corn and US$14/bushel for soy. The most active May futures contracts on the CBOT for these commodities are around US$8.07, US$7.20 and US$13.63 a bushel, respectively.

 

The outlook is bullish for this week, and markets may erase some of last week's losses, said Hiroyuki Kikukawa, general manager for research with Nihon Unicom Inc., a Japan-based commodities brokerage.

 

There was a large decline in speculative positions across wheat, soy and soyoil in CBOT futures contracts in the week ending February 22, according to the data from the Commodity Futures Trading Commission.

 

Net speculative positions fell by 12,000 contracts in CBOT corn futures. In CBOT wheat futures, net speculative positions fell by half with net longs dropping to 10,000 contracts. Speculative net long positions in soy and soyoil each fell by around 23%. Speculative net longs in soy are now the lowest since August 2010 at 101,000 contracts.

 

However, some analysts caution that unlike wheat and corn, there is still some downside potential for soy.

 

CBOT May soy futures are likely to move in a range of US$13.40-$14/bushel in the next few days, Gokon said.

 

Analysts said the recent decline in grain prices has spurred physical buying, which in turn is providing support for the market.

 

South Korea's Major Feedmill Group and the Busan branch of Korea Feed Association together Friday bought three cargoes of South American soymeal totaling 165,000 tonnes at US$434-$439/tonne on a cost-and-freight basis for arrival between June 30 and August 5.

 

Japanese compound feed manufacturers purchased around 300,000 tonnes of corn in the second half of February and also stepped up pricing of cargoes purchased earlier.

 

Flour millers in South Korea, compound feed manufacturers in Japan and oilseed crushers in China are all snapping up grain cargoes.