Grain prices seen to be range bound in Asia

Asian grain prices will likely be range bound this week, though a stronger US dollar could weigh on prices.

 

Upcoming wheat harvests in the US, Europe, Russia as well as neighbouring countries may also put downward pressure on prices, traders and analysts said.

 

Dollar strength makes US agricultural exports less competitive, prompting exporters to lower prices. In futures trading, a stronger dollar makes dollar-denominated commodities more expensive to buy using other currencies, which also results in lower prices.

 

"The outlook for major grain crops continues to be bearish, though not much movement is expected this week," said a Tokyo-based executive at a global trading company.

 

Favourable weather so far for crops in the US has already been priced into the market, and some investors may start to cover short positions, perceiving prices to have bottomed.

 

Any gains on back of such short covering will be within a limited range and may even be reversed if the spell of good weather and dollar strengthening continues, traders said.

 

The July corn futures contract at the Chicago Board of Trade may move between US$3.50 and US$3.80 a bushel this week, they said.

 

CBOT July corn futures ended 7 cents, or 1.9%, higher Friday (May 21) at US$3.69 per bushel.

 

More and more market participants are thinking that China's 2010 corn imports may not surpass 1.5 million tonnes until September, of which at least 900,000 tonnes have already been purchased, said an analyst in Singapore.

 

Such a volume will not be enough to reduce US inventories if output hits the high levels expected this year, he said.

 

All eyes are now set on the size of China's next corn crop, which could determine which way corn prices swing in 2010, analysts have said.

 

Investors in CBOT corn futures will be tracking the weather in the US as well as in China, they said.

 

China's corn output fell to 155 million tonnes in 2009-10 from 166 million tonnes a year earlier due to a drought, and CBOT futures prices rose recently on the back of worries that delayed planting may affect the next crop as well.

 

However, Zeng Liying, the deputy chief of China's State Administration of Grain said the government's corn stocks are at historically high levels, and that a third of the stocks are sufficient to meet local demand.

 

Zeng said the government could if needed control grain prices by, for example, increasing auction volumes or selling strategic reserves.

 

For soy, traders expect prices to remain below US$9.50/bushel this week given good planting progress amid favourable weather in the US.

 

CBOT July soy futures settled 3 cents or 0.3%, lower Friday at US$9.41/bushel.

 

"Reports indicate that soil moisture is adequate and the crop is also enjoying good sunshine and this is putting a cap on prices," a Singapore-based commodities broker said.

 

For wheat, traders project prices between US$4.50 and US$4.80 a bushel this week. On Friday, the July contract on CBOT ended 2 1/4 cents, or 0.5%, higher at US$4.72 a bushel.