Asia Grain Outlook on Monday: Corn likely to rise more on fundamentals

 

 

Corn prices are expected to gain further following a 3% rise in futures Friday, thanks to a combination of bullish fundamental factors and a fresh inflow of funds.

 

The March corn futures contract on the Chicago Board of Trade was down 0.25% at US$4.03 a bushel at 0639 GMT, off lows earlier Monday.

 

"There are fundamental reasons behind the rally (in futures). The U.S. harvest delay and solid demand have attracted funds," said Koname Gokon, a commodities analyst at Okato Shoji Co.

 

Some market participants are concerned about the impact of the snowfall on unharvested western corn crops, especially considering that this year's harvest is lagging far behind the usual pace, leaving a large crop in the field.

 

Given that a bumper harvest of soy in South America is weighing on soy prices, U.S. corn acreage is expected to increase in the coming season.

 

However, "new crop corn prices will need to strengthen relative to soy prices over the coming months in order to encourage this acreage switch," said Rabobank in a research report last week.

 

Some analysts said Friday's rally on CBOT is an indication that the market had started to "buy acreage" for the 2010 spring plantings.

 

"Although there's still corn in the field, farmers will be turning to next year's crop plans soon," and given the current soy/corn ratio, the price of corn needs to rally to become more attractive for farmers to grow, said Agricharts.

 

Meanwhile, demand from the major buyers in Asia--South Korea, Taiwan and Japan--was good, while expected increased use of biofuels in the U.S. next year also lent support to prices, said Gokon.

 

He pegged resistance for March corn at US$4.20-US$4.25 per bushel and support at US$3.80.

 

Unlike other parts of the commodities complex, agricultural prices have failed to recover to the same degree as those in the energy and metals sectors during 2009, said Deutsche Bank in a report Friday.

 

With prices of many agricultural commodities trading at or below their long-run historical averages in real terms, "we believe this cheap valuation of the agricultural sector is inconsistent with bullish fundamentals across the complex," it said.