March 24, 2008

Asia Grains Outlook on Monday: Prices to fall on broader econ trend

Grain prices are likely to keep falling in the week ahead as global economic worries continue to roil commodities.

The U.S. grains planting report, due to be released by the U.S. Department of Agriculture on March 31, is expected to be quite bullish, analysts said. But grains seem to be caught up in wider bearishness for all asset classes.

"In the first quarter of this year, a lot of fund money had entered the commodities market, leading to a never-before-seen volatility in grains prices. Now, there's a liquidity crunch and funds are pulling out from grains," said Luke Chandler, analyst with Rabobank in Australia.

Chandler said the fund pullout is likely to continue in the short term as banks put pressure on funds to improve their liquidity positions and long liquidation in commodity futures is an easy way to generate liquidity.

Singapore-based Mark Samson, vice-president of U.S. Wheat Associates in South Asia, said funds are taking profits at present, which has more to do with banking problems in the U.S. than grain markets.

While there are a few bearish fundamental signals for wheat, good rains recently in key producing regions such as the southern U.S. and Australia, and a 7% rise in U.S. winter sowing, mean wheat production won't rise enough this year to see a huge reduction in prices.

In Asia last week, not much tender activity was reported. Japan's Ministry of Agriculture bought 92,000 metric tonnes wheat in its weekly tender, lower than the 125,000-200,000 tonnes wheat it normally buys in weekly tenders.

China's soybean imports were lower last week, at two to three cargoes compared with three to four cargoes in the preceding week, according to data provided by commodities consultancy firm Shanghai JCI.