July 27, 2010

 

Bullish bias expected for Asian grain prices on tight supply

 

 

Asian grain prices are likely to rise or hold steady this week on limited supply amid adverse weather and strong demand, according to trade participants.

 

While wheat and soy prices are likely to again test last week's highs, corn may remain steady this week around current levels.

 

"The tightness in wheat supply remains and this is expected to push up prices this week," said Koname Gokon, deputy general manager at commodity brokerage Okato Shoji Co.'s research division.

 

Due to adverse weather in Europe and Russia, wheat supply is expected to be badly hit in the next one year, said a trader in Seoul. He said the next bullish cycle in wheat has started and is likely to persist for the rest of 2010.

 

Traders said the impact of a lower-than-expected wheat crop in Europe and the CIS countries may be exacerbated by lower spring plantings in the US. Growers in the US have shifted towards corn and soy from wheat this season in the hope of higher returns.

 

Most traders expect December wheat futures contract on the Chicago Board of Trade to rise to US$6.40 a bushel this week. The contract moved around US$6.26 a bushel during the Asian trading hours Monday (July 26).

 

A bullish tone is also expected in soy this week, said a Japan-based trading executive. He said strong Chinese demand is driving up prices despite the higher plantings in the US.

 

Traders said China is expected to buy more soy from the international market because adverse weather is affecting the local crop.

 

"There is no change in the market situation since last week. The tight physical demand and supply situation remains," said Gokon.

 

Traders expect the CBOT November soy futures contract to rise above US$9.90 a bushel this week. The contract was trading around US$9.79 a bushel during Asian trading hours Monday.

 

However, they said such gains are not expected in corn this week due to sluggish local demand in the US.

 

Demand for corn exports is strong but the same cannot be said for local US sales, said a Singapore-based trader with a global commodities brokerage. He said crude oil futures on the New York Mercantile Exchange are finding it difficult to sustain above US$80 a barrel and this is affecting ethanol demand growth.

 

A strong expansion in corn plantings in the US this year is also preventing a significant upside in prices, despite demand from China, Japan and South Korea, traders said.

 

The CBOT December corn futures contract is expected to mostly move in a US$3.70-US$3.90 range this week, they said. The December contract ended 5 3/4 cents lower Friday (Jul 23) at US$3.84 1/2.