December 21, 2010

Asian corn prices to rise to US$6.30 per bushel

Corn prices in Asia will likely gain during the next few months amid tight supplies, competition among crops to expand land, rising crude oil prices and strong demand for ethanol use.

Most traders and analysts expect prices to rise to US$6.30 a bushel in the next few weeks.

Importers are still hoping for a downward correction in the near term but fundamentals point towards a bullish trend.

"Buyers are very cautious in making further corn purchases and pricing their earlier buys but to expect a decline in prices may be wishful thinking," said a corn importer in Japan.

He said due to the rising demand for corn to make both fuel and food, its area under cultivation in the US needs to expand by at least four million hectares next year.

Unless prices rise, corn will not be able to compete with other crops such as cotton and soy.

Corn has gained recently, tracking gains in soy, ANZ Banking Group said in a research note.

Delivered prices of US corn into North Asia have increased by more than US$60 a tonne in the last six month and are currently around US$310/tonne.

The most active March corn futures contract on the CBOT Monday (Dec 20) rose above US$6/bushel and is now close to its highest level in around 28 months.

Higher crude oil prices and strong demand for ethanol are supportive for corn futures, said Koname Gokon, deputy general manager at Japanese commodity brokerage Okato Shoji Co.'s research division.

He said the next upside target for CBOT March corn futures is US$6.20.

The US plans to extend tax incentives for ethanol production by another year and this will boost the demand for corn, said Hiroyuki Kikukawa, general manager for research with Japan-based commodities brokerage Nihon Unicom Inc.

"US corn production estimates have declined significantly over the past few months, while ethanol production continues apace," he noted.

Corn buyers in Japan and South Korea can't keep to the sidelines indefinitely; if the current price uptrend continues they will have to make purchases as a hedge against future market gains, said a Singapore-based analyst.

China is not contracting fresh imports of corn for immediate shipments, due to the ongoing local harvest, but trading companies expect it to resume purchases by the second quarter of next year, to build local reserves.