September 17, 2012

 

Asian grain prices may rise on tight supply

 

 

Due to tightening supply resulting from a drought in Russia, Asian grain prices are likely to rise the rest of the month, buyers' efforts to lock in supply at current prices and the US Federal Reserve's monetary stimulus programme.

 

"Ideally, prices should be declining during the peak US harvest season between September and November but the serious drought has badly hit output and increased our cost of buying," said a grains and oilseeds importer in Jakarta.

 

Most traders and analysts expect near-month wheat, corn and soy futures on the Chicago Board of Trade to test US$9.45, US$8.0 and US$17.95 a bushel, respectively, in the next few weeks. The prices are currently around US$9.15, US$7.8 and US$17.60 a bushel.

 

Wheat offers more potential upside than in corn because of concerns about supply from Russia and Australia, said Kaname Gokon, deputy general manager at Tokyo-based brokerage Okato Shoji.

 

Russia's wheat exports may plunge by as much as 60% to 8.5 million tonnes in the marketing year that started July 1, the International Grains Council (IGC) said.

 

The IGC forecast production to decline by 27% to 41 million tonnes but private analysts put output closer to 38 million tonnes, even lower than in 2010, when the country was hit by the worst drought on record.

 

The US drought and resulting decline in corn output has already been priced into the market, Gokon said.

 

A tight supply of corn is pushing up prices for wheat, which is being increasingly used for animal feed, said a Dhaka-based Bangladeshi government official. The lowest offer in a Bangladesh government's tender this week to import 50,000 tonnes wheat was submitted at US$351.95/tonne, basis cost, insurance and freight.

 

The price is 29% higher than the price for Bangladesh's previous purchase from India's Emmsons International at US$273.73/tonne, CIF, in June.

 

Wheat from the Black Sea region and Central Europe is now offered around US$350/tonne, free on board, and no sales have been reported in East Asia due to the high cost of transportation.

 

A US Federal Reserve's bond-buying programme announced Thursday (Sep 13) is expected to weaken the dollar, providing further scope for exporters to raise the prices of physical commodities such as grains that are already scarce due to drought, analysts said.

 

Due to a decline in the availability of soymeal from South America and the US, buyers are turning to India to meet their needs.

 

Due to improved monsoon rainfall, the latest trades in Indian soymeal are at US$618/tonne, free alongside ship, down from US$645/tonne late last month.

 

Global trading companies are buying several parcels of Indian soymeal--between 6,000 tonnes and 12,000 tonnes each--to supply animal feed processors in Vietnam, Thailand, Japan, South Korea and Indonesia, traders said.