October 3, 2006

 

Asia Corn Outlook: Premiums seen down on weak demand

 

 

Premiums for corn and wheat delivered to Asia may fall marginally in the week ahead, owing to lackluster demand and lesser costs for freight.

 

"Supplies are tight and outlook for the medium term is very bullish but downward aberrations at times will keep happening as is the case for this week," said a Seoul-based official of a grains trading house.

 

She said there are a string of holidays that will close South Korea for most of the week and regular institutionalized purchases of corn and wheat are expected to resume only after the weekend.

 

Traders said so far there is no news of any tender to purchase corn or wheat coming up in Taiwan either.

 

However, they caution that trade is expected to be lackluster for only a short while and an upswing in premiums isn't ruled out after trading houses resume business from next week.

 

"Corn premiums have also been slightly lower because of slight decline in costs of freight," said a Tokyo-based official of an international trading house.

 

He said that since May, freight for corn delivery in Japan has almost doubled to US$55/tonne owing to large demand for shipment of farm commodities to and from India and China.

 

A small downtrend has been seen recently in corn premiums but demand continues to be on the lower side.

 

Several buyers prefer to wait in anticipation of a further decline (in premiums) though this may not happen," he said.

 

For January-onwards shipment to Japanese ports of yellow corn, there is a premium of around 195 U.S. cents a bushel over March contract on the Chicago Board of Trade.

 

Japan buys over 1.3 million metric tonnes of corn a month, mostly from the U.S.

 

Korea Corn Processing Industry Association, or Kocopia, bought up to 55,000 metric tonnes of optional-origin corn for January shipment from trading house Cargill in a tender concluded Friday, a Seoul-based trader said.

 

Cargill can supply one cargo of non-genetically modified corn at US$175.88 a tonne, cost and freight, of U.S. or South American origin or one cargo of Chinese origin at US$169.88/tonne, the trader said.

 

In wheat, India - likely to be the world's largest importer in terms of volumes in the year to March 2007 - may spearhead strong global demand in the next few three months.

 

"International wheat prices have gone up by over US$10/tonne in the last 10 days, they may hold for a while but not long because demand is strong and supplies tight," noted a Singapore-based grains analyst.

 

Premiums are slightly lower, partly because the benchmark prices have moved up significantly, he noted.

 

Private Indian buyers have already contracted close to 1.0 million tonnes of imports for delivery by December, said a Mumbai-based official of an international trading house.

 

Indian Food Minister Sharad Pawar said last week that the government may not extend the deadline for duty-free wheat imports beyond December.

 

Private buyers have recently contracted wheat imports of Black Sea origin between US$215/tonne and US$220/tonne, cost and freight. Australian wheat has been purchased around US$235/tonne, cost and freight.

 

Traders, however, warn against quality issues that may hamper sales to India after a cargo of Russian origin wheat shipped by Switzerland-based trading firm Agrico Trade and Finance failed quality tests at the southern port of Chennai.

 

Tight supplies from Australia are also seen bullish for the wheat market for at least the next 12 months.

 

The Australian government's chief commodities forecaster, the Australian Bureau of Agricultural & Resource Economics, or Abare, has downwardly revised its projection of 22.8 million tonnes of new crop wheat production to 16.4 million tonnes.

 

Traders in Singapore are even more pessimistic and peg the Australian crop closer to 12 million tonnes.

 

Japan, one of Asia's consistent wheat importers, buys on average close to 100,000 tonnes through tenders every week.

 

Japan's Ministry of Agriculture, Forestry and Fisheries bought 80,000 metric tonnes of milling wheat in a tender concluded Thursday, a ministry official said.

 

MAFF bought 60,000 tonnes of U.S. wheat and 20,000 tonnes of Canadian wheat, to be shipped between Nov. 1-30. It didn't buy 25,000 tonnes of Australian wheat sought in the tender, the official said.

 

MAFF will seek 106,000 metric tonnes of milling wheat in a buy tender to be held Thursday.

 

MAFF will buy 40,000 tonnes of U.S. wheat, 21,000 tonnes of Canadian wheat and 45,000 tonnes of Australian wheat.

 

MAFF is also seeking 20,000 tonnes of Australia-origin barley as part of the same tender.

 

The entire shipment of wheat and barley is to be shipped between Dec. 1, 2006 and Jan. 10, 2007.

 

Three South Korean flour mills - Daehan, Daesun and Samhwa - have jointly bought 23,000 metric tonnes of U.S. No. 1 wheat from trading house Cargill for shipment in November and December in a tender that concluded Wednesday.