November 11, 2010

 

USDA reports profit-taking to ease grain prices

Asian grain prices are likely to be lower over the next few days, as investors take profits after a monthly agriculture demand and supply report from the USDA confirmed projections of tight supplies.

 

The buy-on-rumour-sell-on-fact phenomenon is expected to drag down prices this week but fundamentals are strong enough for prices to consolidate over the next four weeks.

 

A downward correction in prices may spur physical buying by wheat, corn and soy importers in Asia.

 

"The net speculative long positions in both corn and soybeans futures are almost double that of normal levels. It is about time for speculators to liquidate long positions," said Nobuyuki Chino, president of Tokyo-based trading company Unipac Grain.

 

Fundamentals are bullish but market is expected to be in a correction mode due to technical and speculative selling, said Koname Gokon, deputy general manager at the research division of commodity brokerage Okato Shoji Co.

 

The USDA revised lower on Tuesday (Nov 9) its estimate for US corn output in the year to August 2011 by around three million tonnes to 318.5 million tonnes. In October, the USDA had revised the country's corn output estimates down sharply to 321.7 million tonnes from 334 million tonnes.

 

Production estimates for US corn have been revised lower for the third month in a row. The bullish factors have mostly been priced in by the market and CBOT March corn futures may fall toward US$5.80 a bushel this week from the current US$5.91 level.

 

Most analysts also expect a downward correction in wheat futures due to an improved production outlook in Australia and Latin America, though global demand remains strong. The USDA has revised up Australia's production estimate to 24 million tonnes from 23 million tonnes. But it also raised China's feed-wheat consumption projections by two million tonnes and cut Russia's output estimate by 500,000 tonnes.

 

Analysts have a downside target for CBOT December wheat futures contract of US$7/bushel, then US$6.80/bushel, compared with current levels of around US$7.20/bushel.

 

Speculative profit-taking may exert downward pressure on soy prices as well for the remainder of this week. However, the price outlook remains bullish for soy in the medium term.

 

Soy stocks-to-usage ratio is now much lower than last month's estimate, Claudio Oliveira, head of trading at Castlestone Management, said.

 

The USDA revised lower the country's estimates for ending stocks of soy in 2010-2011 to five million tonnes from 7.2 million tonnes. It raised China's soy import estimates by two million tonnes to 57 million tonnes.

 

China's government said Tuesday (Nov 9) soy imports rose 48% on-year in October to 3.73 million tonnes. Strong Chinese physical demand is supportive for soy futures but speculative buying of futures contracts on CBOT is also responsible for pushing prices above US$13/bushel, said Unipac's Chino.

 

CBOT January soy futures settled US$0.54 1/4, or 4.3%, higher Tuesday (Nov 9) at US$13.29/bushel. Prices rose by as much as US$0.70, or 5.4%, to US$13.44 3/4 a bushel during intraday trading.