August 21, 2006

 

Asia Corn Outlook: Premiums may fall; CBOT weakness

 

 

Premiums for wheat and corn delivered to Asia may fall in the week ahead as both wheat and corn futures on the Chicago Board of Trade seem poised for more losses in the near term.

 

For wheat, CBOT futures seem focused on demand-side fundamentals, and weak export demand for U.S. wheat may continue to pressure futures.

 

For corn, the general weather outlook for the developing U.S. crop remains favorable, which may prevent much short-term gains.

 

But the long-term perspective for U.S. corn looks quite bullish as Chinese supply of corn is showing no signs of reviving, leaving the U.S. the overwhelmingly dominant supplier of corn to Asian buyers.

 

Asian demand for wheat continues to be led by India, whose appetite for wheat right now seems to be insatiable.

 

India's federal government has already bought 3.83 million metric tonnes of wheat since February through State Trading Corp. to bolster its grain reserves.

 

A senior government official told Dow Jones Newswires last week that it may import an additional 1.67 million tonnes over a period of several months.

 

"Our stock position will begin to get increasingly comfortable as already imported wheat is delivered at ports, and there is no cause for worry on supplies, but the government is considering to import some more wheat to serve as a cushion for the future," the official said.

 

On the other hand, India's private importers have already booked orders to import 1.8 million tonnes of wheat since June 29, when the federal government slashed the wheat import duty to 5% from 50%.

 

Meanwhile, government-run trading house MMTC Ltd. is evaluating bids for its 120,000 tonnes wheat buy tender for September-October shipment. The results of the tender may be announced over the next few days.

 

Japan's Ministry of Agriculture, Forestry and Fisheries didn't hold their weekly wheat tender last week. There is no information on whether the tender will be held this week.

 

In the corn market, the Korea Feed Association's Seoul branch bought a total of 165,000 tonnes of corn in a tender from trading houses Bunge and Archer Daniels Midland last week.

 

The association's Pusan branch bought 110,000 tonnes of optional-origin corn from trading house Archer Daniels Midland in private negotiations last week.

 

Taiwan Sugar Corp. is seeking 23,000 tonnes of U.S.-origin corn in a tender to be concluded Tuesday, for September-October shipment.

 

In other news, a severe drought in China's southwest and northwestern regions may lead to a fall in China's corn crop this year, analysts said.

 

According to analysts from the China National Grain & Oils Information Center, corn production will drop by 800,000 to 1.2 million tonnes in Chongqing and Sichuan.

 

But some gains in corn acreage in these regions may compensate for some of the production losses due to the drought, they added.

 

In contrast, China's wheat production is expected to rise 5.8% on year to 103.1 million tonnes in 2006, said analysts from the center.

 

The analysts said oversupply will continue to pressure domestic wheat prices this year as demand remains sluggish.