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October 13, 2011

 

Volatility expected for Asia's grain prices 

 

 

Chinese demand and a USDA report are expected to give medium-term signals for prices of Asian grain, which will likely be unstable for the rest of the week, trade participants said.

 

Traders tipped corn on the Chicago Board of Trade to move between US$5.90-6.70/bushel in the next few weeks, compared with US$6.50/bushel for the near-month contract now.

 

They expect wheat around US$6.00-6.80/bushel, compared with around US$6.60/bushel, and soy around US$11.50-12.80/bushel compared with US$12.35/bushel.

 

Traders said strong Chinese demand with government-run China Grains Corp., or Sinograin, purchasing 1.5 million tonnes of corn Tuesday will provide support, although the ongoing US harvest will limit the upside for prices.

 

Such bookings drive up prices but choke off future demand, Iowa-based MaxYield Cooperative analyst Karl Setzer said.

 

Last week, US No. two yellow corn was offered around US$317-320 a tonne, cost and freight, for January shipment to China.

 

The market could swing either way, but the general perception is that the USDA will revise its supply estimates for corn and soy upwards, said a Singapore-based executive with a global commodities trading company.

 

He said even if production from the ongoing harvest isn't revised up, above-expectations inventories from the old crop indicate overall stocks may still be higher.

 

The USDA report is likely to be bearish, but the market has mostly factored in the expected higher supply forecast, Hiroyuki Kikukawa, general manager for research with Japan-based commodities brokerage Nihon Unicom, said.

 

Due to surprises in recent USDA statistics, and with uncertainty looming over production levels, many investors have already liquidated long positions.

 

According to official data, the share of speculative net long positions in overall open interest on US agricultural commodity markets dropped to 3% from 15% in the four weeks to October 4.

 

ANZ Bank economist Paul Deane said that the speed at which speculative capital flowed out of agricultural markets in September has easily surpassed 2008, and the recent liquidation has reset the agricultural speculative position back the start of the 2010 agriculture bull market.

 

Wheat prices may get support from a smaller spring crop in the US and the impact of dry weather on upcoming winter planting.

 

Taiwan Wednesday paid almost 5% higher than two weeks ago for wheat.

 

It bought US Dark Northern Spring at US$456.28/tonne, cost and freight, and Hard Red Winter wheat at US$395.26/tonne.

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