July 10, 2012

US drought, Russian floods may boost Asian grain prices up

Dry weather in the US which will pull down output and a delay in shipments from flood-hit areas in Russia will likely push Asian grain prices up this week, trade participants said.

"There are weather issues in two major grain exporting countries, which are driving up prices," a Singapore-based executive with a global grain trader said.

Although shipments from the Russian port of Novorossiysk have resumed, there is a backlog yet to be cleared, he added. Shipping operations were suspended recently due to heavy floods in the Krasnodar region in Russia.

Importers in Asia are also worried about supply from the US, the top exporter of agricultural commodities such as wheat, corn and soy.

Most traders and analysts expect grain and soy prices on the Chicago Board of Trade to rise by up to US$0.40 a bushel in the next few days. They expect the USDA to slash its projection for yield and production in a monthly report due Wednesday (July 11). The most-active August soy and September wheat and corn contracts on CBOT are trading around US$16, US$8.25 and US$7.20, respectively.

Soy stocks are already tight and may decline further due to dry US weather, a trader in Tokyo said. Many commercial investors and hedge funds had gone short on grain futures a few months ago in anticipation of bumper crops in the US and they are now buying back contracts, Kaname Gokon, deputy general manager at Tokyo-based brokerage Okato Shoji, said.

Cash soy sales aren't slowing down either. China has purchased around nine million bushels of US soy at just over US$14 a bushel, indicating a lack of demand rationing, Karl Setzer, an Iowa-based analyst with MaxYield Cooperative, said.

Corn's near-month contract prices on CBOT are now at levels not seen since September 2011 and with US$6.66-6.75 out of the way, they may have a clear run back up to US$7.79-7.99, UK-based FuturesTechs said in a report.

However, Setzer cautioned that the widely expected large cut in corn yield projections by the USDA may not happen immediately. The USDA has a tendency of waiting until August to make sizable corn yield changes as that is when field collected data can be used, he said.

If the USDA's cuts in expected yields and output of corn and soy are below trade expectations, prices will ease again by the end of the week, traders said.