August 2, 2012

Asia grain prices likely higher in H2

Asian grain prices is likely to stay high in the coming months, as buyers try to seek alternative sources of supply amid the worst US drought in over 50 years.

However, prices may fall this week by US$0.10-0.30 a bushel due to a technical correction, only to rebound again tracking tight fundamentals, traders said.

Several major global suppliers including the US, South America, the Black Sea region and India are reeling under drought-like conditions. Amid rising prices and tight availability of key agricultural commodities, importers are facing difficulty in scouting for cheaper sources, as dry weather is widespread.

East Asian nations import around 150 million tonnes of wheat, corn, soybeans and soymeal annually, and even an average annual increase of us$50/tonne can translate into an additional US$7.5 billion, much of which is passed on to consumers despite price control measures.

Cash market prices of wheat have risen by about US$75/tonne in the last two months, corn by US$85/tonne and soymeal by US$160/tonne.

Near-month soybeans and corn for August and September delivery on the Chicago Board of Trade hit a record high of US$17.7775 a bushel and US$8.2875 July 20. September wheat hit a four-year high of US$9.4725 July 23. The three contracts are now trading around US$17.00, US$7.92 and US$8.66. The futures are off highs but that hasn't translated into lower cash market prices.

For several decades, the US has been Asia's biggest supplier of agricultural commodities. And Asian dependence on the US, particularly for soybeans, was expected to be even bigger this year due to drought in many parts of South America.

The condition is aggravated by the ongoing wheat harvest in the Black Sea region has also been hit by dry weather and Russia's wheat exports in 2012-13 may fall 59%, the International Grains Council said on Friday (July 27). In India, monsoon rainfall is so far 21% below the long-term average.

The US supplies more than half of world's corn but now domestic buyers such as Smithfield Foods Inc. and Pilgrim's Pride Inc. plan to import it from Brazil to cut costs. "It is hard to justify why an importer would book US corn when we can't even get our own processors to take it," Karl Setzer, an Iowa-based analyst with MaxYield Cooperative, said.