March 22, 2011

 

Asian grain prices may increase on Chinese demand

 

 

Asia's grain prices are likely to raise gains on technical buying as concerns over weak Japanese demand and speculations on China's demand for corn.

 

Traders said China may have purchased several cargoes of US corn last week totalling more than 600,000 tonnes when prices fell sharply but the deals couldn't be confirmed immediately.

 

"At least one major Chinese buyer is said to have been very active last week in (corn) purchases for shipment between July and October," said a person familiar with the developments.

 

Last Thursday, the USDA reported that private exporters struck deals to sell 116,000 tonnes of corn for delivery to unknown destinations during the 2010-11 marketing year. Traders said the sales may have been to buyers in China.

 

The person said actual sales to China may turn out to be much higher but the grain will mostly be shipped in the next marketing year, which begins September 1.

 

If sales are made on a free-on-board basis, US exporters aren't obliged to disclose the destination until the vessel for shipment is designated.

 

Even in the absence of Chinese demand, inventories of US corn are projected to hit a 15-year low by the end of August.

 

Any imports by China can deplete stocks further and more than offset any slowdown in purchases by Japan, said a Washington-based industry analyst.

 

Japan is the world's largest corn importer while the US is the largest exporter. China imported 1.6 million tonnes corn last year, its largest purchase in several years, but imports can potentially increase manifold in future as demand for pork increases. Corn is primarily used as animal feed.

 

Traders point out that higher corn prices can push up wheat prices as well. Wheat's premium to corn on the CBOT fell to its lowest in a decade last week to less than US$0.32.

 

Earlier this year, China purchased at least 500,000 tonnes of Australian wheat, around 125,000 tonnes of it food-grade wheat.

 

Traders expect the most active corn, wheat and soy May futures contracts on CBOT to test US$7.0 a bushel, US$7.50 and US$13.80 respectively this week. The contracts are currently trading around US$6.89, US$7.23 and US$13.66.

 

However, higher grain prices may slow down Asian physical buying this week.

 

The recent downward correction spurred a heavy buying spree across north and Southeast Asia from South Korea to Indonesia and Vietnam to the Philippines.

 

Buyers in the region locked in supply of more than 1.1 million tonnes of grains and oilmeals last week.

 

South Korea's feed and flour millers alone purchased at least 705,000 tonnes of grains and oilmeals, making the country one of the world's largest grain buyers last week.

 

Australia sold 200,000 tonnes of wheat in the week to Friday, including a cargo to quake-hit Japan.