July 10, 2006

 

Asia Corn Outlook: Premiums to rise on US weather

 

 

Premiums for corn and wheat delivered to Asia are likely to rise in the week ahead on U.S. weather concerns.

 

U.S.-based analysts said Chicago Board of Trade corn and wheat futures are now totally weather-driven, and forecasts of hot and dry conditions this week for both the crops will continue to spur price gains.

 

Asian demand for corn has cooled off over the last few weeks as CBOT futures soared.

 

A trader in Seoul said there seems little chance for revival in corn demand over the coming two weeks.

 

He said that apart from the high corn prices, the volatile nature of CBOT corn futures is making South Korean traders uneasy.

 

At present, corn delivered from the U.S. Gulf to South Korea is around 80 U.S. cents a bushel above the CBOT September contract.

 

Meantime, ocean freight costs for panamax-sized vessels from the U.S. Gulf to South Korea also remain quite high, at US$44/tonne.

 

Some Asian traders are switching to buying feed wheat from corn because of price advantage.

 

Philippine feedmillers last week bought 40,300 tonnes of feed wheat at US$163.90 a tonne, on a cost-and-freight basis, for delivery between September and October.

 

Some traders said South Korea's Major Feedmill Group bought 55,000 tonnes of feed wheat in private talks last week.

 

South Korea's Nonghyup Feed Inc. also bought 52,500 tonnes of optional-origin feed wheat last week from trading house Concordia in a tender.

 

Other major wheat import deals last week include Japan's Ministry of Agriculture's buying of 80,000 tonnes of food wheat from the U.S., Canada and Australia in a tender.

 

Meantime, the Philippine Department of Agriculture last week turned down a request by millers to allow 120,000 tonnes of additional corn imports at preferential tariff rates.

 

The government said such low-duty corn imports weren't required since harvesting of corn in Philippines is expected to begin this month.

 

Feedmillers have so far this calendar year already bought the entire annual quota of 216,000 tonnes of corn under the preferential tariff rate of 35%.

 

The normal import duty on corn is 50%.

 

In corn, the only reported import deal last week was Korea Corn Processing Association's buying of 110,000 tonnes of corn from trading house Louis Dreyfus in a tender.

 

In China, a senior industry official told Dow Jones Newswires that corn imports may not take off in 2006, as local prices are at the same level as international prices, and it doesn't make much economic sense for importers.

 

Gu Lifeng, corn division manager of China National Cereals, Oils & Foodstuffs Import & Export Corp., or Cofco, said corn demand in China is rising fast, mostly because of demand from the corn processors, who are using large amounts of corn to make starch, syrups and ethanol.

 

He, however, added that imports of corn will ultimately depend on the price differential between local and imported sorts.

 

In China's local markets, many feed producers have started replacing corn with feed wheat, due to costs.

 

However, this development isn't expected to push corn prices much lower since corn demand from the industrial sector remains strong.