August 11, 2011

Asian corn prices to remain strong

Asia's corn prices will likely remain stable despite market caution, due to support from a downward revision in US harvest and an anticipated increase in Chinese demand.

On Tuesday (Aug 9), US corn futures on the CBOT closed higher after rebounding from a one-month low, supported by output concerns. CBOT December corn ended up 0.4% at US$6.88 1/2 a bushel.

ANZ Bank said in a research note Wednesday that the corn market has shown "resilience" over the last fortnight as it has already priced in a significant downward revision of US yields.

However, any more upside may be fairly limited.

It said the market has already priced in a corn yield of 155-156 bushels an acre and prices will rise sharply only if the USDA cuts yields by six bushels/acre in its report World Supply and Demand Estimates report Thursday.

"We think this is unlikely at this stage of the season, and so maintain the view that the market is likely to be underwhelmed by any changes the USDA might make on US corn yield this month," ANZ agriculture economist Paul Deane and analyst Victor Thianpiriya said.

Chinese demand may also keep CBOT corn around US$6.75 a bushel in the first quarter of next year, as 2011-12 imports will likely reach five million tonnes versus the USDA's estimates of two million tonnes, Macquarie Research said.

"The risk of the US and Europe pulling the world back into recession will be a dominant feature in the grain and oilseed markets in the coming weeks and months. With the threat of risk-off trades pulling commodity markets down and discussions of falling demand due to lower growth, prices will struggle to break out to the upside of their current range."

However, with physical demand supporting prices and weather events curtailing production, the fundamental situation is "significantly different to 2008-09."