April 14, 2011

 

CBOT wheat and corn futures to continue falling

 

 

CBOT grain prices are expected to continue falling from recent highs this week, as importers wait and see whether buying opportunities will emerge amid heightened volatility in the global market, trading executives said Wednesday (Apr 13).

 

China is making enquiries for Australian feed wheat for shipment in the second half of the year, to capitalise on a huge discount of up to US$80 per tonne to US corn, due to tight corn supply, trading executives said.

 

The nearby-month May corn futures contract on the CBOT hit a record high of US$7.8375 per bushel earlier this week, but has now fallen back around US$7.57 per bushel.

 

Prices of wheat futures on the CBOT briefly fell below corn futures for the first time in 15 years on Tuesday (Apr 12), and are now around US$7.61 per bushel. Traders expect CBOT wheat futures to trade lower than corn again in the next few days, but are uncertain at what levels the grains will find support. Many expect both wheat and corn futures to fall to US$7.40 per bushel or lower this week.

 

"Many grain importers are following a wait-and-watch [approach] and fresh purchases are slow in coming," although some buyers are making enquiries, said a Singapore-based executive with a global trading company. He said both buyers and sellers are keen for prices to stabilise before they continue to trade in the physical market.

 

Movement in prices is likely to be in a narrow range for the next few days, said Koname Gokon, deputy General Manager at Japanese commodity brokerage Okato Shoji Co. He said if corn prices stay high, corn demand may fall as importers substitute it with feed wheat.

 

The cheapest grades of Australian feed wheat are still trading around US$310 per tonne, cost and freight for southeast Asian destinations, unchanged from last week, an exporter said. He said the impact of weaker CBOT futures takes time to trickle down to Australian grain markets, which have their own fundamentals to track.

 

The market is also concerned over the developing situation in Japan after the government announced that the nuclear situation there is as serious as the one that took place in Chernobyl in 1986, said Karl Setzer, a US-based analyst with MaxYield Cooperative. He said this could disrupt commodity demand.

 

The USDA's decision to keep its forecast for US end-of-season corn stocks unchanged in its monthly report issued Friday (Apr 8) is weighing on prices. The market expectation was that the USDA would revise lower its forecast for corn closing stocks in the marketing year ending August 31. The US is the world's largest corn exporter, with more than a 50% share of the global trade.

 

The USDA kept its forecast for corn closing stocks unchanged at 17.14 million tonnes, a 15-year low. But it lowered its estimate for closing stocks of wheat in major exporting countries other than the US, such as Argentina, Australia, Canada and the EU. It cut the forecast by 6% from its previous estimate in March, to 27.22 million tonnes.