March 5, 2007

 

Asia Grain Outlook on Monday: Price direction unclear as market eyes CBOT

  

 

Grain prices seem evenly poised to rise or fall in the week ahead as a number of fundamental and technical factors vie for determining the course of grain futures on the Chicago Board of Trade.

 

Analysts are quite clear that corn is leading the way for grain futures.

 

"Corn will continue to drive the overall outlook for the commodities. Corn needs to get the acres (in the U.S) in order to meet the growing demand. Soybeans, wheat and other crops are subservient to corn," said an analyst report by U.S.-based futures broking firm A G Edwards & Sons.

 

Over the past two sessions, all grain futures took a hit on the CBOT as speculators unwound their long positions. How long the liquidation will last and when generally bullish fundamentals will take over grain prices remains an open question.

 

Last week, the U.S. Department of Agriculture's crop outlook forum released bearish U.S. planting figures for both corn and soybeans, though analysts are taking both with a pinch of salt.

 

While the USDA said the soybean planted area in 2007-08 is likely to be 70.5 million acres, most private analysts were putting it closer to 66 million.

 

The USDA said corn planting in the 2007-08 season would be around 87 million acres, up sharply from 78.3 million in 2006-07.

 

One analyst said the numbers take a controversial middle ground and assume big acreage gains for corn, normal weather and enough corn for everyone's use.

 

On the other hand, analysts are predicting a sharp increase in corn use for producing ethanol in 2007, while feed demand also remains buoyant, all potentially bullish factors for corn prices throughout the year.

 

Weather also remains a major wild card for U.S. and South American crops and can determine the price trend.

 

According to a Deutsche Bank analyst report, "the current reading of Pacific water temperatures from the U.S. National Oceanic and Atmospheric Administration suggests a building La Nina event over the next three months," which could prove supportive for grain prices in 2007.

 

It added that a La Nina event gives rise to the possibility of an extended drought in the U.S. and across South America, threatening agricultural production.

 

Meanwhile, after a weakening in CBOT corn futures over the past few sessions, Asian traders have booked large quantities of corn for delivery in the July-September quarter.

 

South Korea's Major Feedmill Group and the Seoul branch of the Korea Feed Association bought a total of 330,000 tonnes of corn in a joint tender last week.

 

The price range of the shipments varies from US$228.50-US$230.50/tonne, and all of the shipments will arrive in various South Korean ports between July 15 and Sept. 5.

 

Separately, the Pusan branch of the Korea Feed Association bought 55,000 tonnes of corn and a similar quantity of feed wheat for July-August delivery.

 

If CBOT corn futures continue to slip this week, more such opportunistic buying may emerge from Asian buyers.