September 4, 2006

 

Asia Corn Outlook: Premiums may rise on US wheat

 

 

Premiums of corn and wheat delivered to Asia may rise this week, mainly because strong fundamentals for U.S. wheat are expected to keep both corn and wheat futures well-supported on the Chicago Board of Trade.

 

Globally, major wheat producers such as Argentina and Australia are experiencing dry weather that could cut output, while there could be quality issues with European wheat because of recent rainy weather. Global wheat stocks are also tightening. On the back of supply concerns, wheat demand has been given a shot in the arm by India's steady wheat imports since late February.

 

The country's federal government alone has so far this year tendered to import 5.5 million metric tonnes of wheat, while private importers have already received government approval to import up to 3 million tonnes.

 

The Indian government's latest wheat import tender was floated last week, seeking 1.67 million tonnes of optional-origin wheat. The final date for receiving bids for the tender is Tuesday.

 

The government has already imported 3.83 million tonnes of wheat through global tenders.

 

In a further effort to boost wheat imports, the government Monday cut the wheat import duty for private importers to 0% from 5% previously. The government can import wheat duty-free.

 

The government's massive wheat imports are a desperate attempt to shore up rapidly falling wheat stocks and curb rising domestic prices of wheat and flour.

 

Many international analysts believe India's sudden resumption of wheat imports after a gap of six years has been a major boost to global prices this year. As an indicator of how much prices have risen, while India imported wheat at US$179/tonne in February, it's currently importing wheat at US$230/tonne, a rise of 29% in just seven months.

 

However, last week, India's federal government said it doesn't plan to import more wheat beyond the current 5.5 million tonnes it has already tendered to buy. But in the past, the government has made similar statements and has gone ahead and imported more wheat.

 

In other Asian markets, the Taiwan Flour Millers Association is seeking 100,350 tonnes of U.S. No. 1 wheat in a tender to be concluded Wednesday, for October-November delivery.

 

Meanwhile, a drought in China's northeast and southwest continues to wither the corn crop, and total corn output in China may fall by up to 1.5 million tonnes this year, the China Feed Industry Association said last week.

 

Corn output is expected to drop by 400,000 tonnes in Chongqing municipality and 1.05 million tonnes in Sichuan province in the southwest, the association said.

 

However, the China National Grain & Oils Information Center, or CNGOIC, a major government-backed think tank, estimates that China's corn output will hit 142 million tonnes in the 2006-07 crop year (October-September), up from 139.4 million tonnes in 2005-06.

 

China's corn demand is also expected to continue its relentless pace of growth.

 

The country, which had the capacity to process 50 million tonnes of corn annually at the end of 2005, is expected to see that capacity rise to 70 million tonnes by the end of 2006 and 85 million tonnes in 2007, according to CNGOIC.

 

In the meantime, China's grain prices continue to be flat in most of the country except drought-affected Chongqing and Sichuan, where prices are rising.

 

Corn prices in the rest of China may get support over the coming weeks as feed demand traditionally rises during the winter months.