September 6, 2012

 

 

In the next few days, Asian grain prices are likely to decline on technical selling and profit-taking ahead of the release of USDA's monthly demand and supply report.

 

Near-month wheat, corn and soy futures are currently trading around US$8.63, US$8.00 and US$17.64 a bushel on the Chicago Board of Trade.

 

The grains market is now ripe for a correction this week, Hiroyuki Kikukawa, general manager for research at Nihon Unicom in Japan said.

 

Most traders and analysts expect a correction of US$0.05 to US$0.15 a bushel before another rally sets in due to strong fundamentals.

 

Many investors are liquidating longs ahead of the USDA report's release next Wednesday (Sep 12) because of concerns that the yield and output estimates for corn and soy may be revised higher, said a grains exporter in Melbourne.

 

The US is the world's largest exporter of agricultural commodities, supplying millions of tonnes to Asian buyers. During an international agriculture conference in Phuket, Thailand, last week, one perception was that US production of soy and corn may eventually turn out to be better than initial estimates, though still sharply lower on year.

 

The US has been the largest producer and exporter of soy for decades, with annual production in some years rising above 90 million tonnes. But the government has forecast a 12% fall in output this year to 73 million tonnes due to a drought, which comes on top of an 8.2% decline in 2011-12.

 

"Though there is a wide range of rainfall levels and soil moisture in farms within miles of each other but with the rains we have had recently along the soy-producing belt, the crop may not get any smaller than already estimated," Roy Bardole, chairman of the US Soy Export Council, told Dow Jones Newswires last week.

 

Earlier this month, USDA lowered the country's corn output forecast by 17% to 273.79 million tonnes.

 

"A small crop has a long tail and we may have output above earlier projections, though many areas in Kansas, Missouri, and Southern Illinois are badly hit by drought," Julius Schaaf, vice chairman of the US Grains Council, said at the conference sidelines last week.

 

"I don't think we have seen the lowest estimates of the season and a clearer picture of the crop size will only emerge after the harvest is over," said John Baize, a Washington D.C.-based agricultural consultant.

 

It is due to such uncertainties that many investors want to play safe, liquidate their positions, and then take a price call after the USDA report is released.