July 25, 2008

 

Asia Grain Outlook on Friday: Corn, soybean prices may fall more next week

 

 

The prices of corn and soybean are likely to keep falling in the week ahead, as good U.S. weather for the developing crop and weakening crude prices offer little support.

 

John Reeve, associate director for agricultural commodities with UBS in Singapore, said both corn and soybean had seen a lot of demand destruction in the ethanol and livestock sectors, as prices had soared in the past few months.

 

"There may be some demand revival as prices fall, which in turn may lead to a rebound in prices over the next few months, though not to the record high levels," he added.

 

Giving some indication of how ethanol demand is likely to react to falling corn prices, Chris de Lavigne, analyst with Frost & Sullivan in Singapore, said it may revive interest in ethanol plants, which have recently fallen out of favor with investors as voices blaming ethanol for the rise in food prices grew louder.

 

"Food prices rose as a result of several complex factors, not just due to ethanol; the key factor was that investors saw agriculture as having been undervalued for three decades. However, I do feel the boom phase of ethanol that we have seen in the past two years is over," said Lavigne.

 

Corn is the key feedstock for producing ethanol, especially in the U.S., which has embarked on an ambitious program to produce ethanol from corn in order to reduce its dependence on crude oil imports.

 

At 0709 GMT, the Chicago Board of Trade December corn contract was trading 2 cents higher at US$5.94 a bushel, while November soybean was trading 9 cents higher at US$13.82/bushel.

 

In deals this week, Japan's Ministry of Agriculture Wednesday sought 57,000 metric tonnes of feed wheat and 335,000 tonnes of feed barley in a simultaneous buy-sell, or SBS, tender. The tender is to be concluded Aug. 6, a ministry official said.

 

In an SBS tender, the government matches the lowest offer price of the overseas sellers with the highest bid price of the domestic buyers.

 

Meanwhile, Chinese importers bought only 2-3 soybean cargoes from the U.S. and Argentina this week, as traders took a breather from imports after import orders of 15-17 cargoes last week.

 

The soybean cargoes will be delivered in August and September.

 

In other news, rice prices are likely to fall over the rest of the year as Asian traders expect India to review its white rice export ban, imposed in March, after the country completes its rice harvest in October.

 

At present, Thai rice is trading around US$800/tonne, while Vietnamese rice is available at US$600-US$725/tonne. India's premium basmati rice is selling at an average price of US$2,000/tonne.

 

Government officials in India have indicated the country is set to produce 96 million tonnes of rice this fall, which can potentially leave a surplus of 4 million tonnes for export.

 

However, Indian experts said the rice output figure can hardly be estimated so early in the planting season, as much depends on how well-spread and timely the June-September monsoon rains are.

 

The monsoon rains have been particularly subdued so far in July, a critical month for the sowing and development of the paddy crop. Rains have been 2% below normal in the June 1-July 23 period. Continued scanty rains in southern India may hit the yield and even the output of the paddy crop.