November 15, 2010

 

Pending rise in China's interest rates hit Asian grain prices

Asian grain prices fell sharply Friday (Nov 12) and will likely remain subdued early next week due to speculative long liquidation as investors take leads from a stronger dollar and apprehension that China may raise interest rates.

 

Physical trading for wheat, corn and soy has also slowed down due to uncertainty in price trends.

 

Traders said many among them expect a further downside and will at least like to wait before buying and selling physical cargoes until there is more clarity in the markets.

 

The decline in wheat, corn and soy futures is in line with what traders and analysts expected; they said earlier this week that a sell-off was in the offing despite tight supplies projected in a monthly report of the USDA.

 

While speculation over a interest rate hike by China triggered long liquidation and selling pressure, the market was already ripe for a downward correction, they said.

 

"Agricultural markets have been in overbought condition for quite sometime now and speculators are taking profits ahead of the weekend," said an analyst with a Tokyo-based commodities brokerage.

 

Many investors who have been pushing up the prices by setting up long positions are now jittery due to fears that China may curb inflation through cooling measures such as interest rate hikes, said Avtar Sandu, manager for Asian commodities with Singapore-based Phillip Futures Ltd.

 

The CBOT January soy futures contract fell US$0.5025 during electronic trade Friday (Nov 12) to US$12.8875 a bushel. December wheat futures tumbled US$0.185 to US$6.855 a bushel while December corn fell US$0.1875 to US$5.4525 a bushel.

 

Most traders expect corn prices early next week around US$5.60/bushel, wheat between US$6.9-$7 and soy close to US$13/bushel.

 

"The prices have been high due to speculative buying and sooner or later investors have to liquidate longs," said Nobuyuki Chino, president of Tokyo-based trading company Unipac Grain.

 

He said soy prices above US$13 a bushel can't be justified despite strong import demand in China.

 

The fall in agricultural futures in China and strong dollar are leading to the downward correction, said Hiroyuki Kikukawa, general manager for research with Nihon Unicom Inc., a Japan-based commodities brokerage.

 

Some analysts said the fundamental outlook hasn't altered completely in the span of a few days; it's just that there are new bullish leads to prop up the market.

 

Strong fundamentals have already been factored in by the agricultural market, said Koname Gokon, deputy general manager at commodity brokerage Okato Shoji Co.'s research division.

 

On Tuesday (Nov 9), the USDA revised lower its estimate for US corn output in the year to August 2011 by around three million tonnes to 318.5 million tonnes.

 

It also raised China's feed wheat consumption projections by two million tonnes and cut Russia's output estimate by 500,000 tonnes.

 

The USDA revised the country's estimates for ending stocks of soy in 2010-11 to five million tonnes from 7.2 million tonnes. It raised China's soy import estimates by two million tonnes to 57 million tonnes.