June 19, 2012

Macroeconomic factors to drive Asian grain prices

Trade participants said Monday (June 18) that after last Friday's (June 15) selloff, Asian grain prices will likely be driven by macroeconomic factors, but spot demand may keep prices of near-month futures in range.

"Fundamentals will play a part but macroeconomic factors could exert a greater influence in markets the week ahead," Phillip Futures analyst Lynette Tan said in a research note.

The dominance of macroeconomic factors is most pronounced in the volatile corn market, as Chicago Board of Trade futures fell over 3% last Friday (June 15) due to reduced risk exposure ahead of the Greek elections, only to regain some ground, rebounding some 1% in early Asia trade Monday (June 18) after the pro-bailout New Democracy party won the Greek vote.

Tan said key drivers this week include currency reactions to the Greek elections, market expectations of the Federal Open Market Committee meeting and any possible market-stabilising actions from G20 nations.

There is also a great deal of weather uncertainty for the US Corn Belt, just as the crop is entering a critical point in development.

Tan expects a downgrade in the condition of US corn crops in Tuesday's crop progress report from the USDA, due to a lack of required cool, wet weather.

"Any unexpected weather changes can move corn markets dramatically as the USDA is relying on forecasts of bumper crops this year to boost the record low inventory."

While there are weather concerns, Kaname Gokon, deputy general manager at Tokyo-based brokerage Okato Shoji, said nearby-month corn prices are under downside risk, partly due to a record harvest in the US, the top exporter.

"[With the] cash market stable, prices are likely to stay in range," Gokon said, tipping CBOT July corn to test US$5.60 a bushel this month.

CBOT July corn dropped US$0.22 or 3.7% to US$5.79 1/2 Friday and was up 0.5% at US$5.82 1/4 at 1101 GMT Monday.