September 18, 2006

 

Asia Corn Outlook: Premiums firm; freight rates high

 

 

Premiums for corn and wheat delivered to Asia are expected to remain steady in the week ahead, as strong demand for vessels to ship commodities to the continent have kept freight rates high.

 

"Premiums have risen in the past few weeks and are likely to stay firm for sometime, though volatility is unlikely," said a Singapore-based trader in farm commodities.

 

Traffic in commodities is on the rise and this is evidenced by the demand for panamax vessels, which can ship large volumes.

 

"India has bought lots of wheat, China is buying soybean. (all this buying is) having an impact on freight and overall costs," the trader said.

 

In the last seven months, India's federal government has contracted to buy 5.5 million metric tonnes wheat, which is expected to be delivered in more than 200 shipments by February 2007.

 

"Nearly 60 shipments have either been delivered or are in different stages of delivery," said an Indian government official.

 

Analysts said only a U.S. entry into the Indian wheat market - for which negotiations have taken place recently - can ease prices.

 

India has emerged as one of the world's largest importers of wheat and is likely to buy around 8.5 million tonnes in the year to March 2007.

 

India entered the international wheat purchase market this year with a bang, and the U.S.'s failure to make any sales due to import quality rules has led to higher prices in Asia, analysts noted.

 

U.S. soft white wheat was offered in Asia around $165-$170/tonne, on a free-on-board basis, while spring wheat was available around $200-$206/tonne, FOB, they added.

 

The U.S. envoy to India recently held discussions with India's Food Minister Sharad Pawar to resolve the wheat trade issue.

 

Traders said representatives of U.S. wheat exporters also set up meetings with major players in the Indian market to explore the possibility of establishing deals.

 

According to traders, Taiwan may buy two wheat cargoes totaling 81,810 tonnes through a tender this week for delivery from end-October to Dec. 1.

 

Last week, Japan's Ministry of Agriculture, Forestry and Fisheries bought 116,000 tonnes of milling wheat in a tender concluded last Thursday.

 

MAFF bought 55,000 tonnes of U.S. wheat, 20,000 tonnes of Canadian wheat and 41,000 tonnes of Australian wheat, to be shipped between Nov.1-30, the official said.

 

Corn premiums are likely to remain steady as demand is strong, buyers said.

 

The near term threat of a northern tier frost this week and rains that could delay the corn harvest in the U.S. may induce some short covering, Tim Hannagan, an analyst at Alaron Commodities said in a commentary.

 

"Demand continues to far exceed a year ago," he said.

 

India's poultry industry, which is grappling with shortages, has asked the government to lift the import duty on corn.

 

Friday, the government estimated the local summer-sown corn output at 1.1 million tonnes, down from 1.24 million tonnes estimated in the year-earlier period.

 

Seoul-based Korea Corn Processing Industry Association, or Kocopia, bought up to 110,000 tonnes of optional-origin corn from trading house Cargill in a tender concluded Thursday, an association official said.

 

Kocopia bought two cargoes of non-genetically modified corn at $173.82 a tonne of U.S. or South American origin or $167.82/tonne of Chinese origin, on cost and freight basis.

 

Traders said South Korea may also buy 22,500 tonnes barley for feed purposes this week for delivery by end-November.