April 18, 2007

 

Asia Grain Outlook on Wednesday: Premiums may rise on soaring freight costs

 

 

Premiums of grains delivered to Asia may rise as ocean freight costs continue to soar.

 

However, gains in freight costs are likely to be offset to some extent by falling grains futures in the U.S., where prices have resumed a downward trend after gains earlier this month on concerns about crop damage in the U.S. because of freezing weather. 
 

A trader in Japan said the spot ocean freight cost for a panamax-sized cargo is US$70/tonne for the U.S. Gulf to Japan route, US$15 higher than the same time last month.

 

The fall in grains futures is being led by a drop in corn prices, outlook for which has turned bearish after a March 30 U.S. Department of Agriculture report forecast massive on-year gains in corn acreage this year.

 

In a recent report, Wells Fargo Economics said the outlook for corn prices is expected to remain bearish over the next 12 months.

 

In Asia, South Korea's Major Feedmill Group, or MFG, and Korea Feed Association, or KFA, rejected all bids for their tender to buy 495,000 tonnes of corn, which was one of the largest single corn purchase tenders so far this year. An MFG official said the tenders were rejected because the bids were much higher than expected. A re-tender will take place sometime, but a new date hasn't been set yet, he added.

 

In Japan, the federal agriculture ministry is likely to buy 145,000 tonnes of food wheat in a tender Thursday, unchanged from the quantity it bought last week.

 

In India, prospects of wheat imports are becoming brighter by the day, as the federal government struggles to procure wheat from farmers for its buffer stocks. The government is likely to turn to imports to meet any shortfall in wheat procurement from the crop that is being harvested.

 

Wheat purchases by the federal government from farmers as of April 17 are estimated at 2.9 million metric tonnes, down 35.5% on year, a senior Indian government official said.

 

"Wheat market arrivals and procurement continues to be slow this year, it needs to be investigated whether private companies are directly procuring the grain from growers at the farm gate itself," the official said.

 

Both government agencies and private traders are allowed to buy wheat from farmers directly, although farmers often prefer selling to private traders, as they pay more than the state-set intervention price.