August 7, 2006

 

Asia Corn Outlook: Wheat may gain on global weather

 

 

Premiums of wheat delivered to Asia may rise in the week ahead as adverse weather conditions for wheat crops in Europe, U.S. and Australia are increasing buying interest in Chicago Board of Trade wheat futures.

 

Corn premiums may be influenced by the U.S. Department of Agriculture's weekly crop progress report due later Monday.

 

In Asia, a report by commodities analysis firm Shanghai JCI Ltd said that judging from the current bumper wheat harvest in China, it seems there will be a bumper corn harvest too, which could lead to "remarkable rise" in exports of these commodities.

 

It added that feed demand in China continues to be slack, nearly 20% below normal levels. There has been some decline in domestic wheat flour consumption too, as consumers have increased rice consumption.

 

All these factors are leading to declines in domestic wheat and corn prices and eroding the margins of grain growers, which could lead to the Chinese government encouraging exports of these commodities.

 

The report's conclusion of a likely rise in corn exports runs contrary to expectations among U.S.-based analysts that China's corn output is struggling to meet demand, especially from the starch and ethanol sectors, and imports of corn by China may rise in the near term.

 

In Asia, both Taiwan and South Korea continued to buy feed corn, mostly from the U.S. and will probably continue to do so in this week.

 

South Korea's Nonghyup Feed Inc. bought 195,000 metric tonnes of optional-origin corn in a tender concluded on Friday.

 

At present, the premium for corn delivered to South Korea is at 160-165 U.S. cents/bushel above the CBOT December contract.

 

Taiwan also had a corn import deal last week, with Major Feed Industries Group buying 48,000 tonnes of U.S.-origin feed corn in a tender.

 

In wheat, Japan's Ministry of Agriculture, Forestry and Fisheries bought 148,000 tonnes of food wheat from U.S., Canada and Australia last week.

 

Meantime, India's state-run State Trading Corp.'s recent tender to import 400,000 metric tonnes of wheat has met with a lukewarm response from international suppliers, with not even a single bid for the entire quantity.

 

The lowest bid was by Switzerland's trading house Agrico, around US$210-US$212/tonne for 200,000 tonnes wheat.

 

The federal government is expected to announce the winning bids and prices later this week.

 

In other news, U.S. corn growers are keen to assure Asian buyers that the growing use of corn in ethanol production won't cut U.S. corn supplies to Asia.

 

Asian buyers have been somewhat worried about the loss of China as a major corn exporter to the region.

 

China hasn't issued a fresh corn export quota since Feb. 28. Also, there are signs that U.S. corn supplies are being absorbed by the U.S. ethanol industry, which is growing exponentially.

 

But U.S. analysts said that the U.S. farmers are looking at increasing corn acreage by 6%-10% over the next two to three years, besides increasing the use of genetically-modified corn which has already led to significant gains in productivity.

 

"I think the concern among many Asian buyers (as to) whether the U.S will be able to keep exporting corn (to the region) is a valid one. But ethanol demand isn't going to cut off U.S. exports to the region in the future," Adel Yusupov, international operations manager at U.S. Grains Council, a lobby group for U.S. grain growers, told Dow Jones Newswires.