March 17, 2010

 

Asia Grain Outlook on Wednesday: Short covering may support; Japan buys soymeal

 

 

Asian grain prices may get support from short covering as investors unwind speculative short positions despite weak fundamentals, trading executives said Wednesday.

 

"Supplies are ample but concerns remain about price recovery due to short covering," said a Tokyo-based executive at a global commodities brokerage.

 

He said there could at least be some gains in the near term despite the bumper soybean and corn crops being harvested in South America and high global wheat stocks.

 

"While the size of the short positions that speculative investors might use has shrunk, reasons for using it have increased and risk of a covering rally is not small in absolute terms," ANZ Banking Group said in a research report.

 

It said over the last six weeks key grain markets have been flat to lower while equities and financial markets have gained on inflation.

 

The May soybeans contract on the Chicago Board of Trade, which is also the most active contract, settled 15 cents, or 1.61%, higher Tuesday at US$9.45 a bushel.

 

CBOT May corn futures ended up 3 1/2 cents at US$3.66 3/4 a bushel.

 

"CBOT soybeans below US$9.50/bushel and corn below US$3.80/bushel indicate the market is oversold and there is potential for short covering," said an analyst in Singapore.

 

ANZ said in the report that the impact of short covering will come when it is unexpected and weak fundamentals are pushing prices lower.

 

This is because speculators will look at the relative value of cheap agricultural commodities when inflation expectations are being priced in other markets.

 

In physical markets, Japan and South Korea are actively purchasing corn, wheat and soymeal.

 

Japan is increasingly importing soymeal from China due to higher prices and lower supply from India.

 

Japan, usually a major buyer of Indian soymeal during the October-March period, has taken advantage of heavy volumes being crushed in China in the current season. Indian crushers have found operations unviable due to high local soybean prices.

 

Commodities trading company Cargill sold 23,000 tonnes of U.S. wheat to South Korea's Daehan Flour Mills in a tender Wednesday, for shipment between June 15 and July 15.

 

South Korea's Major Feedmill Group has bought two 55,000-tonne cargoes of feed wheat from Glencore around US$205/tonne, basis cost and freight.

 

Japan's Ministry of Agriculture, Forestry and Fisheries is seeking 136,000 tonnes of wheat in a tender to be finalized Thursday.

 

The wheat, of U.S., Canadian and Australian origin, in six cargoes is for shipment between April 21 and May 20.