July 29, 2010

 

Grain prices in Asia may rise as supplies fall

 

 

Asian grain prices will likely move higher during the next year amid strong demand and declining supplies, according to trade participants and analysts.

 

Rabobank Wednesday (Jul 28) raised its forecast for global wheat prices in the next 12 months to US$5-US$6 a bushel from US$4.50-US$5.50 a bushel due to a production setback in the northern hemisphere.

 

There are still ample stocks of wheat, but a poor crop due to adverse weather in major growing regions such as the Black Sea countries and the EU as well as abysmal plantings in Canada has already begun to drive prices higher.

 

Unlike in the cash market, futures prices factor in the likely demand and supply situation a few months down the line, noted an executive at a Paris-based commodities brokerage, who said it appears that a large portion of current inventories may be depleted in the remainder of 2010.

 

Analysts have also noted that wheat inventories that have been built are in countries such as India and China that are not significant exporters of the grain.

 

Rabobank said wheat futures on the Chicago Board of Trade are likely to average around US$5.50 a bushel in the fourth quarter and US$5.40 a bushel in the current quarter.

 

CBOT September wheat futures contract ended 5 1/2 cents, or 0.9%, higher Tuesday (Jul 27) at US$5.95 a bushel.

 

Traders said if wheat prices rise, they are likely to push corn prices higher as well.

"Until recently, there have been large purchases of feed-grade wheat by buyers in Asia, but as supplies reduce and prices go up, importers may turn to corn," said a Singapore-based executive at a global trading company.

 

Feed wheat exports from the Black Sea region, a source of growing competition for US corn exports, could fall as reduced supplies of better-quality milling wheat forces lower-quality wheat into the milling ration, Rabobank said.

 

US corn is currently the cheapest source of feed grain in the world, and this would add further demand pressure to an already tight balance sheet.

 

The US government's stocks-to-usage ratio forecasts - 11.1% for US stocks of corn at the end of the current marketing year to August 31 and 10.3% for next year - are extremely low in a historical context, and would leave the market vulnerable to the impact of adverse US yields or a significant increase in demand.

 

According to Rabobank's forecast, CBOT corn futures may rise to an average of US$4.25 a bushel in the first half of next year and US$4.10 a bushel in the fourth quarter of this year.

 

Nearby CBOT September corn futures settled 1 1/4 cents, or 0.3%, lower Tuesday at US$3.62 3/4 a bushel, while December corn ended one cent, or 0.3%, lower, at US$3.77 a bushel.