November 18, 2010

 

Lower global grain costs to further physical buying in Asia

The sharp fall in global grain prices may spur another round of physical buying of corn, wheat and soy in Asia, trading executives and analysts said Wednesday (Nov 17).

 

They said wheat, corn and soy prices will likely remain subdued for the rest of the week due to spill over weakness from other asset classes.

 

"Since prices of most grains are currently falling, buyers are cautious, but if the trend continues they may buy several cargoes in the next two days," said a Seoul-based executive at a global trading company.

 

He said South Korea is mostly looking for wheat and corn cargoes for April and May arrival.

 

South Korea bought at least five cargoes totalling 275,000 tonnes of wheat and corn last Friday (Nov 12) when prices fell sharply; importers are on the hunt again.

 

Traders in Japan said they are mainly looking for corn for February-March shipment but many aren't sure if there is a further downside in prices.

 

They said several hundred thousand tonnes of the earlier corn purchases, which were made at a premium to CBOT futures, may be priced in at current levels.

 

"Prices may have bottomed out for the time being and CBOT March corn below US$5.40 a bushel is a good buy considering that prices were above US$6 earlier this month," said a Tokyo-based importer of agricultural commodities.

 

Some analysts expect corn prices to fall further to US$5.30.

 

The grains market is weak and has some more downside potential, said Koname Gokon, deputy general manager at commodity brokerage Okato Shoji Co.'s research division.

 

In Asian hours Wednesday (Nov 17), grain futures on the CBOT extended overnight losses, primarily due to ongoing speculation that China may hike interest rates to curb inflation and this in turn can have an impact on physical demand.

 

The downward impact was particularly heavy in soy, as China is the world's largest importer and only last week its import projections were revised up by two million tonnes to 57 million tonnes for the year to September 2011 by the USDA.

 

China's soy imports were close to 50 million tonnes in 2009-10.

 

The most-active CBOT January soy futures contract extended losses Wednesday (Nov 17) to trade as much as US$0.44 1/2, or 3.65%, lower at US$11.75 1/4 a bushel.

 

Overnight, the contract had ended US$0.66 3/4, or 5.2%, lower at US$12.19 3/4, after hitting the daily lower limit, declining by US$0.70.

 

"Chinese players seem to be liquidating longs on the CBOT due to fears that the government may tighten monetary policy by hiking interest rates," said Okato Shoji's Gokon.

 

Support for CBOT January soy is now at US$12, and then at US$11.70, said Hiroyuki Kikukawa, general manager for research with Japan-based commodities brokerage Nihon Unicom Inc.

 

He put immediate support for December wheat futures at US$6 compared with the current price level a tad below US$6.40.