May 10, 2011

 

Asian grain prices may recover

 

 

Asian grain prices are likely to recover this week due to a weaker US dollar and buying support in both physical and futures markets, trade participants said Friday (May 6).

 

"Prices seem to have bottomed out for the time being," said a Singapore-based trading executive. There is considerable interest from buyers in Southeast Asia seeking South American corn and soy, he said.

 

"The market is now ripe for another rally," said another trader in Tokyo.

 

Traders and analysts expect the most active July wheat, corn and soy futures on the CBOT to test US$7.80, US$7.40 and US$13.60 a bushel, respectively, in the next few days. The contracts are currently trading around US$7.70, US$6.90 and US$13.32 a bushel, respectively.

 

South Korea's largest feedmiller, Nonghyup Feed Inc., did not accept offers in a tender to purchase two cargoes totalling 110,000 tonnes of corn.

 

NOFI was seeking one cargo to arrive by August 5 and another on August 20. The lowest offers for the two cargoes were US$344 a tonne and US$341 a tonne, both on a cost-and-freight basis. NOFI was hoping for a further fall in prices, but this may not happen, said a trader in Seoul.

 

Traders said the renewed weakness in the US dollar is also supportive for grain prices this week.

 

The US is world's largest exporter of agricultural commodities. When the dollar falls, US grain exports become cheaper for buyers using other currencies, so a weaker US dollar is usually accompanied by increases in dollar-denominated grain prices. A weaker US dollar also leads to a shift by some investors from currency markets into commodities.

 

"Last week's selloff in commodities was mainly due to a sense of risk avoidance among investors, but the latest US jobs data shows that its economy is looking much better than expected," said Hiroyuki Kikukawa, general research manager with Japan-based commodities brokerage Nihon Unicom Inc. He said grains prices are likely to recover this week and CBOT July corn futures may even test US$7.50/bushel again.

 

The market is awaiting a monthly demand and supply report from the USDA, to be released later this week. If recent Chinese purchases prompt the USDA to cut US end-August corn stocks projections to less than 17 million tonnes from the current figure 17.14 million tonnes, it would push up global prices.

 

The US is world's largest corn exporter with a global market share of more than 50%. Analysts said delays in spring crop plantings in the US and continuing weather concerns are bullish factors for grains markets.