August 27, 2012

 

 

Due to severe drought conditions in several parts of the world, grain prices in Asia are expected to move higher and even test fresh records later this year as global supplies tighten.

 

Traders and investors are also expecting to get fresh leads on demand and supply from a major agriculture conference in the Thai resort of Phuket next week.

 

The overall grain price outlook is bullish for both futures and cash prices because global supply will still be tight when we enter into 2013, said Kaname Gokon, deputy general manager at Tokyo-based commodities brokerage Okato Shoji.

 

Traders are already setting up investor strategies and taking positions, anticipating wheat, corn and soy prices to rise to US$10 a bushel, US$9/bushel and US$18.5/bushel, respectively.

 

After touching record highs in recent weeks, corn and soy prices have eased slightly. Near-month wheat, corn and soy futures are now trading around US$8.81, US$8.14 and US$17.42 respectively.

 

Hundreds of agricultural traders, growers and analysts from the US and Southeast Asia will be gathering in Phuket for a three-day conference starting Wednesday to analyse the current supply situation.

 

It will be interesting to hear from US farmers and exporters whether they are in a position to meet demand for the next year, said a Singapore-based executive with a global commodity trading company.

 

"The pipeline for soy will be almost dry by the time we harvest the next crop one year from now and the US will also be importing soy from South America, but the country can still meet the demand of its customers," said Roy Bardole, chairman of the US Soy Export Council and an Iowa-based grower.

 

Earlier this month, the USDA lowered the country's soy output estimate by 12% to 73 million tonnes. It lowered the US corn output forecast by 17% to 273.79 million tonnes.

 

Corn prices are already at record highs above US$400/tonne on a delivered basis in East Asian countries. Analysts say that a major focus of the conference in Phuket will be the ability of alternative origins to meet demand which was earlier being met by the US.

 

Many Asian buyers of grains are reducing their exposure to the US and instead buying their needs from Brazil, the Black Sea region and Russia, said Gokon.

 

"Importers are buying corn from Brazil, also substituting corn with feed wheat and delaying final pricing of their CBOT premium-based corn purchases until the last minute before loading of cargoes at origin," said Nobuyuki Chino, the Tokyo-based president of Continental Rice Corp.

 

Another determinant of corn prices will be the US policy on mandatory use of ethanol in gasoline blending, said Hiroyuki Kikukawa, general manager for research at Nihon Unicom in Japan.

 

Any reduction in ethanol blending and therefore corn use to make ethanol will drag down prices, Kikukawa said.

 

Unlike corn, which can be substituted with wheat, importers in Asia are more worried about the global supply of soy, which will be replenished only with the next South American harvest in March, and they are locking in purchases up to a year in advance.

 

The Kaohsiung branch of Taiwan's Breakfast Soy Procurement Association has bought three cargoes totalling 173,000 tonnes of US and Brazilian soy from Agrex and Bunge for November, March and July shipment. It's rare for Taiwanese importers to buy more than one cargo of soy at a time, and that too is usually for shipment within two to three months.