Asia Grain Outlook on Friday: Prices may rise as focus stays on drought

 

 

Cash grains prices are likely to stay firm in Asia in coming days, with the market likely to continue focusing on a lack of rain in the region, which is still fueling concerns that crop output could be lower in the weeks and months ahead, traders said Friday.

 

In China, around 8 million hectares of cropland are suffering from drought, which though down 37% from earlier peak levels, is still slightly higher than average, the government's flood and drought relief office said earlier this week.

 

China's soy prices are likely to remain supported because the government is unlikely to cut soy sales prices during its weekly auctions ahead of new arrivals in around two weeks of soy from the harvest, as it aims to protect farmers' profits, said Xu Zhimou, an analyst with Ruida Futures Brokerage Co.

 

In Australia, July wheat exports were 37% lower than Junae's, and took the total for the marketing year that started Oct. 1 last year to 12.35 million tonnes, the government's Bureau of Statistics said.

 

Patchy rain in some parts of Eastern Australia fell short of expectations, adding to existing worries about wheat production. Analysts' estimates earlier this week had pegged this year's crop at 21 million tonnes, but some are now estimating the wheat crop to be as low as 18 million tonnes, compared with an actual 21.4 million tonnes last year.

 

In India, a slight improvement in rains since last week may help soothe weather-related crop concerns slightly, though the monsoon rains were still 23% below the 50-year average in the June 1-Sept. 2 period.

 

India is heavily dependent on its annual monsoon for summer-sown crops as 60% of its farmlands are rainfed.

 

Chicago Board of Trade futures were mostly lower in lackluster volumes in Asian trading Friday, while talk that India's government may release wheat stocks to help keep prices in check damped buying interest in futures on the National Commodities and Derivatives Exchange, traders said.

 

"Talks that the government is likely to release 1 million tonnes (of wheat) in the local market next week is sidelining buyers. Any further delay in releasing the stocks may keep prices firm in the short-term as local supplies with private traders are dwindling fast," said a Delhi-based trader.

 

In other news, Japan's Ministry of Agriculture said it purchased 127,000 tonnes of U.S., Australian and Canadian wheat in a regular weekly tender concluded late Thursday, while the Korea Feed Association said it purchased 55,000 tonnes of corn from Marubeni for March arrival.

 

The corn was purchased at US$197.50/tonne if it is of U.S. origin and US$194.70/tonne if it is of South American origin, both on a cost-and-freight basis, a KFA official said.

 

Meanwhile, despite soy inventories in the U.S. and South America shrinking to near record lows, the market could be heading for a supply glut of millions of tonnes, if forecasts of a record U.S. harvest and an increase in planting in South America prove correct, a senior agricultural commodities consultant said Thursday.

 

"Farmers (in the U.S.) who are selling soy now at US$10.00-US$11.00/bushel, by April could be glad to be getting US$8.00/bushel. They could even be getting less," said John Baize, president of John C. Baize and Associates.

 

However, continued growth in China's consumption likely means soy demand will remain healthy in the longer term, he said.

 

Baize said the development of an El Nino weather pattern in Asia could also be a supportive factor for soy oil, if dry weather results in lower palm oil production in Malaysia and Indonesia in the months ahead.