December 2, 2010

 

Weather woes may support Asian grain prices

 

 

Weather concerns across Australia, Argentina, the US and Russia are likely to support Asia's grain prices for this month.

 

For the last six months adverse weather, either too dry or too wet, has affected major grain producers and exporters around the world from Russia and Ukraine to Canada and the US, Germany, Australia, Pakistan, Argentina and parts of Southeast Asia, and weather concerns continue to bedevil the grain markets.

 

An ongoing La Nina weather phenomenon has caused excess rain in eastern Australia, damaging the wheat crop and reducing supply of milling wheat, said Paul Deane, Sydney-based Senior Agricultural Economist with the ANZ Banking Group.

 

Wheat futures on the CBOT rose sharply during electronic trade Wednesday (Dec 1), with the nearby December contract gaining as much as US$0.2650 to trade at US$6.7675/bushel.

 

Despite Australia harvesting a bumper crop, the premium for high-protein wheat over lower grades is on the rise.

 

"High-protein wheat supply is tight in both Australia and the US," a Tokyo-based importer said, adding that the situation isn't likely to improve any time soon. Japan is one of Asia's largest wheat importers by volume.

 

Dry weather has adversely affected planting of winter wheat in the US, and may affect corn and soy crops in Argentina, a major exporter.

 

Dryness in Argentina since mid-October is more severe than in 2008 when a drought caused heavy losses in soy and corn production, said Mike Tannura, who heads US-based crop-weather forecasting service T-Storm.

 

Traders in Brazil have sold forward much larger volumes of soy that will be harvested early next year than they did during this time of the season in 2009.

 

Brazil's soy sales are reasonably bullish, as any weather issues could prompt covering rallies in the market, ANZ said in a client note.

 

If dry weather persists in Argentina or problems develop in Brazil, prices of the entire soy complex as well as corn will rise significantly, a Singapore-based executive with a global trading company.

 

Traders expect nearby-month CBOT corn and soy futures to test US$6/bushel and US$13/bushel again in a few weeks, from their current levels of around US$5.50/bushel and US$12.55/bushel respectively.