November 14, 2005

 

Asia Corn Outlook: Premiums may fall on freight rate

 

 

Premiums for corn and wheat delivered to Asia are likely to fall during the week on weakening ocean freight rates and recent data from the U.S. Department of Agriculture, which is expected to be bearish for U.S. corn futures.

 

"Freight rates are likely to continue weakening through the week, though current levels are still quite high. This will put pressure on premiums for wheat and corn delivered to Asia," said a trader in Taipei.

 

The trader said the spot ocean freight rate for panamax-sized cargoes from the U.S Pacific Northwest to Taiwan was unchanged from last week, at $24 a metric tonne.

 

In addition, the U.S. Department of Agriculture last week forecast U.S. 2005-06 corn production at 11.032 billion bushels, above the average analyst estimate of 10.965 billion and just below last year's 11.807 billion bushels.

 

U.S. analysts said the data could be bearish for corn futures.

 

Last week, Chicago Board of Trade corn futures didn't post large movements, with gains and losses limited, or ended mixed.

 

U.S. analysts also said inland barge shipping costs had fallen sharply over the past few weeks, although they are still around 40% higher than the five-year average.

 

Analysts said barge rates are likely to keep falling as continued normal weather patterns in the Midwest should bring river levels back to normal, increasing barge traffic.

 

Lower inland barge rates bring down U.S. export costs of commodities such as wheat, corn and soybeans, pressuring premiums for these commodities delivered to Asia.

 

Meanwhile, wheat demand remains stable in Japan, although traders said it may decline in the coming weeks.

 

"In the bakery and noodle markets, we may see a slight decline in wheat demand," said a trader in Tokyo, without elaborating.

 

Uncertainty Over India's Wheat Imports

 

In other news, there is uncertainty whether India will import wheat in the near term.

 

While speculation remains on whether India will import wheat soon, likely from Australia, India's federal government has so far denied any plans for such imports.

 

Australian wheat exporter AWB Ltd. (AWB.AU) also said it is still awaiting an announcement from the Indian government about possible imports of wheat, company spokesman Peter McBride said Monday.

 

"We're really waiting to see if they come into the market," he said.

 

However, analysts said if wheat prices in India rise too high, the government may allow such imports to keep inflation under control, which has been a major concern of policymakers over the past several months.

 

India's federal government had wheat stocks of around 8.7 million tonnes as of Nov. 9.

 

India's wheat crop is currently being sown, which will likely conclude in January. Harvesting is expected to begin in March.

 

Weather forecaster Meteorlogix said weather conditions are quite favorable for wheat sowing in India and Pakistan.

 

"Wheat planting continues in Pakistan and North India under a seasonally dry weather pattern. Irrigation for this crop should be adequate due to good monsoons," said Meteorlogix. The rains ended in September.

 

Meteorlogix added that weather conditions also remain favorable for the developing winter wheat crop in the north China plains.

 

Meanwhile, AWB Ltd. has said it is still filling a large wheat supply contract to Iraq announced in early September, believed to be about 650,000 tonnes, and deliveries under this contract are expected to continue into early 2006.

 

AWB has also denied knowingly being involved in paying money to Iraq's deposed Saddam Hussein regime under the United Nations oil-for-food program, and said it could have been an unwitting participant in an elaborate scheme of deception devised by the regime.