March 12, 2007

 

Asia Grain Outlook on Monday: Grains prices may move up on fundamentals

  

 

Grains prices are likely to move higher this week as fundamentals remain strong for corn, wheat and soybeans.

 

Prices didn't move much in the last two trading sessions on Chicago Board of Trade but export demand for U.S. soybeans and ethanol usage of U.S. corn both remain quite vibrant. U.S. based commodity trader AgResource Company says that corn, wheat and soybean futures price risks are to the upside.

 

It says that a much-awaited U.S. Department of Agriculture March 30 report on farmers' planting intentions of grains crops in the U.S. this year would make the bears more nervous as planting plans may not be sufficient to meet rising domestic and export demand for grains in the U.S.

 

However, analysts point out that in the longer term, 2007 could see a fall in corn and wheat prices as China, U.S. and the European Union may all turn in big crops this year.

 

U.S.-based Wells Fargo notes that wheat and soybeans are largely tracking corn prices. Corn futures on CBOT have recorded spectacular gains over the past several months due to an exponential rise in demand from ethanol plants. Bullish sentiment on corn has also taken other grains prices higher.

 

Corn prices, on the other hand, in turn pretty much track crude oil prices as crude oil price fluctuations affect the demand and price of ethanol.

 

"With 20% of total demand coming from ethanol, any change in the outlook for ethanol profitability will have a major impact on corn demand," it said.

 

In Asia, China continues to remain an active soybean buyer. Commodities analysts JCI Shanghai say that Chinese traders have made fresh purchase of 7-9 soybean cargoes in the week ending March 9, with 2-3 cargoes from Argentina and the rest from the U.S.

 

At present, premiums for Argentina soybeans delivered to China are at 140-145 U.S. cents/bushel to the CBOT May soybean contract, for shipment in May.

 

Premiums for U.S. soybean delivered to China are, on the other hand, around US 179-185 cents/bushel to the CBOT July soybean contract, for shipment from the US Gulf in July. In other news, India is looking increasingly likely to harvest a bumper wheat crop.

 

India's Agriculture Minister Sharad Pawar last week said the wheat output may reach 73.5 million metric tonnes this year, up from an earlier estimate of 72.5 million tonnes.

 

India produced 69.48 million tonnes of wheat last year.

 

"The current weather conditions are extremely favorable for the wheat crop, (although) the next 15 days are crucial. If similar conditions remain, output will exceed the previous estimate," Pawar said.

 

Pawar added that a decision on whether India needs to import wheat will be taken after the government finishes purchasing wheat from farmers at the state-set intervention price over the next two months.

 

India imported around 6 million tonnes of wheat last year.