March 15, 2012

 

Asia's grain prices may drop in Q2 despite drought condition

 

 

Despite current supply fears resulting from a drought in South America, softening demand and expectations of ample supply may push grain prices lower as soon as the second quarter of the year, analysts said this week.

 

Near-month wheat futures at the Chicago Board of Trade will likely fall to US$5.10 a bushel and average US$5.90/bushel in the marketing year that begins June 1, due to ample stocks, which may reach a record by mid-2013, a Chicago-based analyst said Wednesday (Mar 14).

Corn prices will likely hold steady at US$6.80-7.20 a bushel until the end of August due to tight inventories, but will fall to US$4.50-6.20/bushel in the corn marketing year that begins September 1, due to lower incremental US demand for ethanol production, said Dan Basse, president of consultancy AgResource Co.
 

The use of corn as animal feed has also declined due to rising consumption of substitutes and this may drag corn prices below US$5/bushel next year, he said.

 

Soy prices are currently well supported due to drought hitting output in South America, and the near-month CBOT contract may rise to US$13.80-14.20 a bushel before falling beginning in August to US$9.50-12/bushel as farmers respond to higher prices by expanding acreage.

 

A tight corn supply is supporting wheat prices, but this may change starting in September because the US has almost reached a peak in ethanol consumption, Basse said.

 

Basse's comments followed a similar projection Tuesday by a senior economist with the United Nations' Food and Agriculture Organisation, who said global grain prices are likely to come under downward pressure in the second quarter.

 

"If weather doesn't spring any surprises, the current supply situation shows it is quite possible that prices will decline much lower than current levels," Abdolreza Abbassian said.

 

The FAO recently forecast global wheat production to decline 1.4% this year from a record 700 million tonnes in 2011, but global inventories are large enough to meet import demand, Abbassian said.

 

The current drought in South America, which is expected to hurt corn and soy output, will encourage US farmers to expand spring plantings starting next month, he said.

 

Meanwhile, Argentina's 2012 corn output will likely total 21.5-22 million tonnes, little changed from 2011, a senior Buenos Aires-based trading executive said Tuesday.

 

Due to dry weather, farmers planted some varieties of corn later than usual this year and they have generated above-average yields, said Freddy Pranteda, Cosur SA's director for grains and oilseeds.