October 30, 2006

 

Asia Corn Outlook: Premiums may rise on CBOT gains

 

 

Premiums of corn and soybean delivered to Asia may rise in the week ahead, as Chicago Board of Trade futures for both commodities still have the potential for further gains.

 

Last week, wheat had a mixed performance on CBOT, but analysts believe that forecasts of lower Australian wheat output and brisk exports of U.S. wheat will keep prices supported.

 

An official production forecast for the 2006-07 Australian wheat crop was revised sharply lower last week to 9.5 million metric tonnes, down 62% from actual output of 25.1 million tonnes last crop year ended March 31, reflecting the impact of drought.

 

The latest estimate for wheat is also down from a Sept. 19 projection of 16.4 million tonnes.

 

As for corn, demand outlook is strong because of sales to the ethanol sector in the U.S., which has kept futures well supported.

 

In Asia, not much corn was bought in the past week, with only one tender reported from Taiwan.

 

While traders in major Asian importing countries such as Japan, South Korea and Taiwan are buying corn for first quarter 2007, they are waiting for U.S. futures to weaken and have slowed booking of fresh shipments.

 

Over the past few weeks, Japanese traders have bought around 20% of the total corn needed for the first quarter of 2007, but are reluctant to book fresh shipments, a trader in a Tokyo-based broking firm said.

 

"Import business is slow and people are really keen to see CBOT corn futures cool down a bit," said the trader.

 

The premium of corn delivered to Japan from the U.S. is quite high at moment, traders said, at 205 U.S. cents/bushel above the CBOT March contract for feed corn.

 

While ocean freight cost to Japan have fallen a bit over the past weeks, ocean freight costs have pretty much found the bottom and can rebound in the next few weeks, especially as demand for coal in the northern hemisphere usually builds up as winter approaches, traders added.

 

As demand for coal increases during winter months, more vessels are employed to haul coal, which pushes up demand and cost of ocean freight.

 

A Seoul-based trader said that corn imports are a little slow, since many traders want a clearer picture on how much corn Chinese exporters can supply over the next few months.

 

For most Asian destinations, Chinese corn is usually US$5-US$8/tonne cheaper than U.S. corn, which makes it the first choice for Asian buyers. But China's surging domestic corn consumption, led by ethanol demand, has sharply cut available surplus for export.

 

Over the last month, China's fresh corn exports had shown sharp gains as China's domestic prices started to slip late September in anticipation of a good corn harvest after very low export volumes for most of 2006.

 

However, China's top economic planning agency has tightened control over corn exports in a bid to ensure supplies later this year.

 

The National Development and Reform Commission is believed to be concerned over soaring corn exports, and has taken measures to check the pace of exports.

 

Any contract to export corn needs to be approved by the NDRC.

 

"The NDRC hasn't halted corn exports but wants a slowdown in corn exports, as soaring exports may weigh on supplies later this year," said a trader at Jiliang Group Corp., a major corn exporter in China.

 

Chinese grain companies have contracts to export more than 3 million tonnes of corn for delivery late this year and early next year, according to local media reports.

 

In major import deals last week, Japan's Ministry of Agriculture, Forestry and Fisheries bought 77,000 metric tonnes of U.S., Australian and Canadian wheat in a tender.

 

In addition, Taiwan's Members Feed Industry Group, or MFIG, bought 60,000 metric tonnes of U.S.-origin corn from trading house Cargill in a tender last week.