October 16, 2006

 

Asia Corn Outlook: Premiums to soar on US futures

 

 

Premiums for corn and wheat delivered to Asia are expected to keep rising in the week ahead as futures contracts for both these commodities soar on the Chicago Board of Trade.

 

Reports that Australia's wheat crop may be less than half of the 25 million metric tonnes from crop year April 2005 to March 2006 have been supporting U.S. wheat futures since the beginning of October.

 

Meanwhile, U.S. corn futures have been boosted by the U.S. Department of Agriculture's recent cut in U.S. corn output and stock estimates for the 2006-07 corn crop due to lower harvested area and a reduced yield. Some U.S. market participants expect another cut in corn output estimates in November.

 

On the other hand, Asian wheat buyers are quite concerned over the low Australian wheat crop. A number of Asian countries, especially Japan, South Korea, Indonesia, the Philippines, Malaysia and Vietnam, who import a lot of wheat from Australia, are now wondering about alternatives.

 

While suppliers across the region are worried about the Australian situation, no one is panicking yet.

 

"Many of the Asian millers have covered their imported wheat needs until January. After that, they will have to start looking for alternative sources of wheat if Australia's surplus for export shrinks," said Vijay Iyengar, managing director of Agrocorp International Pte. Ltd., a Singapore-based commodities trading company.

 

Iyengar said flour mills in Indonesia, Malaysia and Vietnam, which depend heavily on Australian wheat, will be hard pressed to find alternative suppliers.

 

While the U.S. could step in as an alternative supplier of wheat to Asia, it could drive up the import cost for many Asian millers, analysts said.

 

"The price of imported wheat has gone up by US$15-US$20/tonne in a matter of one week as a result of the surge in Chicago and Kansas wheat futures," said Teddy Deocares, a trader with Pilmico Food Corp., a flour milling company in the Philippines.

 

Japanese traders also said wheat import prices have risen around 11% in the past week alone.

 

However, India, which emerged as a wheat exporter in 2006 after not importing any wheat for six years, has filled its appetite for imported wheat and may not be importing any more.

 

While there is no official figure on India's total wheat imports from March to September, analysts estimate it to be at least 6 million-7 million tonnes.

 

"India has covered its wheat needs for the foreseeable future. At present, international wheat prices are around US$45/tonne higher than local prices. It doesn't make sense for India to import wheat at these prices," said Atul Chaturvedi, president of the agriculture division at Adani Wilmar Ltd., a major Indian trading company.

 

In the meantime, India's Agriculture Minister Sharad Pawar has said the country may not import wheat in the next financial year beginning April 1, 2007, if there is a bountiful grain harvest.

 

"We're hoping not to import wheat next (financial) year as recent rains are expected to benefit the local crop," Pawar told reporters last week.

 

So far in 2006, India's federal government has already placed orders for 5.5 million metric tonnes of imported wheat and doesn't plan to import any more.

 

In import deals, Japan's Ministry of Agriculture, Forestry and Fisheries bought 40,000 metric tonnes of wheat in a tender last week.

 

There was a lot of corn buying by South Korean feed companies last week.

 

The Korea Feed Association's Pusan and Seoul branches bought a combined 212,500 tonnes of optional-origin corn in two separate tenders last week.

 

Another feed buying group, the Korea Corn Processing Association, or Kocopia, bought 110,000 metric tonnes of optional-origin corn in a tender last week.

 

The Taiwan Sugar Corp. last week rejected all offers by sellers in a tender to buy 35,000 tonnes of U.S.-origin corn. The company is expected to hold another tender this week.