October 26, 2010

 

CBOT grain futures go up amid weak US dollar

Grain futures contracts on the CBOT moved up sharply during Asian trading Monday (Oct 25) hours on fresh buying by speculators and institutional funds as the US dollar fell.

 

Asian grain prices will likely get support this week from the failure of the G-20 meeting to stem the slide of the US dollar that may spur more investments in agricultural commodities such as corn, wheat and soy.

 

Traders and analysts said the G-20 meeting hasn't come out with any concrete measures to reverse the downslide in the US dollar, which makes investments in dollar-denominated CBOT grain futures attractive.

 

The EUR/USD is currently around US$1.405 and analysts expect it to retest the October 15 eight-month high of US$1.4161.

 

"The market is taking its lead from the weakness in the US dollar and funds have been aggressively investing in corn and soybeans," said Paul Deane, Senior Agricultural Economist with ANZ Banking Group.

 

At 0835 GMT, the nearby November soy futures contract was trading US$0.2025 higher at US$12.1975 a bushel.

 

Soy prices may soon test last week's high of US$12.23 a bushel again, said Koname Gokon, deputy general manager at commodity brokerage Okato Shoji Co.'s research division.

 

He said along with a weak US dollar, the dry weather in Brazil, a major soy growing country, and strong Chinese demand are supporting prices.

 

Currently, there is excess liquidity in the market, said Hiroyuki Kikukawa, general manager for research with Nihon Unicom Inc., a Japan-based commodities brokerage.

 

He said soy futures have a potential to even test US$12.5 a bushel.

 

Deane said investors are putting their money in commodities as a hedge against inflation and this in turn is pushing up prices even further.

 

He said there are indications of a quantitative monetary easing early next month by the US, which can support prices of agricultural commodities.

 

Analysts said a combination of external and fundamental factors are pushing up grain prices.

 

There is speculation that the USDA may again revise lower the country's corn yields and production estimate for the year to August 2011. A downward revision earlier this month had pushed up corn prices by almost US$1 a bushel in the span of just one week.

 

Gokon said there is an upside potential for corn prices, which may rise towards US$5.80 a bushel. At 0900 GMT, the CBOT December futures contract traded US$0.13 higher at US$5.73.

 

Since corn and soy are the trendsetters in the grain market, they are pushing up wheat prices too. Most traders put the upside target for wheat this week at US$6.90 a bushel. At 0900 GMT, the December contract was trading US$0.975 higher at US$6.805.