September 25, 2006

 

Asia Corn Outlook: Premiums steady on tight supply

 

 

Premiums for corn and wheat delivered to Asia are likely to stay firm in the week ahead, owing to strong demand and tight supply.

 

"Australia has forecast shrinkage in the size of the next wheat crop due to a drought and India's shortfall also may continue for a year or two," said a Tokyo-based official of an international trading house.

 

He said long-term trends are having a bearing on current prices and premiums.

 

Traders said corn supplies are also tight and higher barge rates from the U.S. Midwest to the Gulf are having an impact on overall prices.

 

Corn premiums are at an historic high and are likely to continue at these levels, at least in the near-term, they said.

 

"A year ago, we were paying around 180 cents a bushel premium over corn contracts on the Chicago Board of Trade. The premiums are now around 210 cents," a buyer in Tokyo said.

 

He said there has been a slight decline in freight rates in the past few days, but corn premiums are mostly firm. Japan buys around 1.3 million metric tonnes of corn a month, mostly from the U.S., he said.

 

Taiwan's Major Feed Industry Group is expected to buy 40,000 tonnes to 60,000 tonnes of corn, for shipment in November and December, in a tender this week.

 

Korea Corn Processing Industry Association, or Kocopia, may consider buying two panamax shipments totaling over 100,000 tonnes corn of optional origin this week, for delivery in January and February, a trader in Seoul said.

 

Kocopia declined all offers received at a tender Thursday, an association official said. It had been seeking to buy up to 110,000 tonnes of optional-origin corn.

 

Although some Chinese offers were attractive, the official said buyers expect freight rates to decline in coming weeks and have decided to wait.

 

Demand for wheat from India, likely to be the world's largest importer in terms of volumes in the year to March 2007, has slowed as deliveries of purchases in earlier months take place.

 

"Australian Prime White wheat is being offered to India flour mills at around US$250/tonne, basis cost and freight for December shipment but there aren't many takers," said a Mumbai-based official of an international trading house. He said the Australian wheat is too costly.

 

Flour millers say unless imported wheat is offered at a discount to prices in the local market, they prefer Indian wheat.

 

However, a fundamental shortage of wheat in India will eventually force millers to buy up to at least 500,000 tonnes more wheat by December, in addition to around 600,000 tonnes already purchased, say analysts.

 

This demand and dwindling global supplies are keeping prices firm.

 

Japanese buyers say U.S. spring wheat is available at a premium of around 100 cents a bushel over contracts on the Minneapolis Grain Exchange and semi-hard winter wheat at a premium of 80 cents/bushel over contracts on the Kansas City Board of Trade.

 

They say on a cost and freight basis, U.S. western white wheat is being offered to Japan for around US$225/tonne. The dark northern spring and red winter wheat is being offered around US$266/tonne, cost and freight.

 

Japan buys on average close to 100,000 tonnes wheat through tenders every week.

 

Japan's Ministry of Agriculture, Forestry and Fisheries bought 95,000 tonnes of milling wheat in a tender concluded Thursday, an agriculture ministry official said.

 

MAFF bought 50,000 tonnes of U.S. wheat, 20,000 tonnes of Canadian wheat and 25,000 tonnes of Australian wheat to be shipped between Nov. 1-30, the official said.

 

MAFF also bought 20,000 tonnes of Australia-origin barley at the same tender.

 

The Taiwan Flour Millers Association bought 40,810 metric tonnes of U.S. No. 1 wheat from trading house Toepfer in a tender concluded Tuesday, a trader in Taipei said.

 

TFMA bought one cargo of different milling wheat at prices ranging from US$165.69-US$204.77/tonne, free on board from the Columbia River District, the trader said.

 

The shipment date is set between Nov. 17 to Dec. 1.

 

TFMA failed to buy any wheat for another cargo of about 41,000 tonnes of milling wheat, citing high prices.