July 24, 2012

 

Asia's grain prices likely up further over US drought

 

 

As the region struggles to cope with the worst US drought in more than half a century by substituting grains and stepping up buying from other countries, Asian grain prices are likely to move higher in the next few weeks, trade participants and analysts said Monday (July 23).

 

The animal-feed industry in the US has started marketing animals at lower body weights than normal and feeding less protein and smaller rations to livestock, said Jay O'Neil, a senior agricultural economist at Kansas State University.

 

Near-month soy and corn hit record highs on the Chicago Board of Trade Friday (July 20). Soy for August was US$17.7775 a bushel, while corn for September reached US$8.2875/bushel. September wheat hit a four-year high of US$9.4725/bushel Monday (July 23).

 

Most traders and analysts now expect the grains to extend gains, forecast near-month CBOT wheat to hit US$9.60/bushel, corn to reach US$8.50/bushel and soy US$18/bushel.

 

There may be occasional profit-taking but any decline is expected to be followed by a sharper rally, a Sydney-based grains exporter said.

 

Corn inventories are already tight in the US, and buyers are turning to cheaper origins such as Brazil, but with freight costs from South America rising, prices may rise there as well, said Kaname Gokon, deputy general manager at Tokyo-based brokerage Okato Shoji.

 

Traders said even some processors in the US are finding it cheaper to source corn from Brazil. It is a weather-driven market and tight supply may drive soy prices to US$18/bushel soon, said Hiroyuki Kikukawa, general manager for research at Nihon Unicom in Japan.

 

"Technically grain markets are overbought but there is still room for them to play up because there are no indications of an end to the US drought," said Avtar Sandu, manager for Asian commodities at Phillip Futures.

 

Prices could rise another 10-15%, said Paul Deane, a Melbourne-based agricultural economist with ANZ Banking Group.

 

In the cash market, wheat, corn and soy import prices, on a delivered basis at East Asian ports, have increased by around US$75/tonne, US$85/tonne and US$160/tonne, respectively, in the last two months.

 

The US has been the largest supplier of agricultural commodities to East Asia for several decades. Asia's dependence on the US, particularly for soy, was expected to be even greater this year because of a drought in parts of South America earlier this year. To make matters worse, the on-going wheat harvest in the Black Sea region has also been hit by dry weather and Russia's exports in 2012-13 may fall 44%, the International Grains Council said.

 

In India, the monsoon rains are so far 22% below the long-term-average and traders are worried that government may use it as a pretext to stall wheat exports from government inventories.