May 15, 2006

 

Asia Corn Outlook: Premiums likely to keep rising

 

 

Premiums for wheat and corn delivered to Asia are likely to continue rising this week amid a bullish U.S. Department of Agriculture forecast of lower ending stocks for corn and a lower-than-expected U.S. winter wheat crop, besides good export demand for both commodities.

 

Both corn and wheat futures on the Chicago Board of Trade had a good week, as the USDA estimates of corn stocks and the wheat crop were construed as bullish by market participants.

 

On the export front, South Korea continues to actively buy U.S. corn, while Japan's weekly wheat auctions are taking in 100,000-150,000 metric tonnes of U.S. wheat every week.

 

Meanwhile, a recent announcement by India's state-run State Trading Corporation that it is seeking to import 3 million tonnes of wheat as part of a single tender to be concluded May 18 has further buoyed wheat futures.

 

However, rising prices are keeping some Asian buyers on the sidelines.

 

A trader with a large Japanese grains brokerage said corn buying has slowed down owing to a surge in CBOT corn futures and sharp gains in freight costs.

 

"The U.S.-Japan panamax freight cost surged by almost US$2/tonne this week, and traders are clearly reluctant to buy at these prices," said a trader at a Japanese grains trading firm.

 

At present, the ocean freight cost for panamax sized cargoes from the U.S. Gulf to Japan is US$35-US$36/tonne.

 

Meanwhile, the premium for corn delivered to Japan from the U.S. is around 150-160 U.S. cents a bushel above the CBOT July contract.

 

Japanese traders said corn buying will pick up pace only if freight costs come down.

 

"Anyway, summer demand for feed corn isn't so high, so traders can wait for freight costs to cool down," said a trader in Tokyo.

 

In South Korea, traders at two large feed buying groups - Major Feedmill Group and the Korea Feed Association - said there are no immediate plans to buy corn this week.

 

Last week, the Korea Feed Association bought 110,000 tonnes of U.S.-origin corn from trading house Mitsubishi in a tender.

 

However, Taiwan Sugar Corp. passed on a tender to buy 23,000 tonnes of U.S. corn last week.

 

One trader in Taipei said Taiwan Sugar may re-tender for corn this week, though the company doesn't seem to have made any final decision.

 

In the wheat market, Japan's Ministry of Agriculture, Forestry and Fisheries bought 90,000 tonnes for July 1-30 shipment in a tender that concluded last week.

 

However, the biggest tender announcement last week was from India's State Trading Corp., which sought 3 million tonnes of optional-origin food wheat in a tender to be concluded May 18.

 

The wheat delivery will take place in shipment sizes of 30,000-50,000 tonnes. The entire shipment of 3 million tonnes will be delivered in India between July and October.

 

The wheat tender has come under criticism from wheat-supplying nations, with some calling India's financial and quality conditions for the bidding too stringent for most international wheat suppliers, such as the U.S. and Australia. Some traders said the minimum bid-bond of US$3 million for all bidders is considered quite high.

 

The maximum width of the vessel, stipulated at 33 feet, is considered too low for large shipments and economies of scale, which could lead to astronomical freight costs, traders added.

 

Meanwhile, shipments of wheat to India from Australia from a previous wheat import tender have been delayed on quality issues, a senior Indian government official said last week.