December 26, 2005

 

Asia Corn Outlook: Lower premiums on futures, freight

 

 

Premiums for corn and wheat delivered to Asia may fall in the week ahead because of expected weakness in U.S. futures and falling spot ocean freight rates.

 

In addition, Asian traders said demand for corn and wheat is expected to be quite dull this week, as most traders are on holiday or preparing to go on one.

 

"There is not much demand expected this week. One hears rumors that Nonghyup Feed Inc., or NOFI, may buy feedwheat, but that's about all," said a trader in Seoul.

 

A trader in Taipei said demand for grains is looking quite sluggish largely due to the holiday season.

 

U.S. corn and wheat futures had a bull run in the week to Friday, largely driven by technical and speculative buying.

 

But U.S. analysts say the current rally is not underpinned by fundamentals, so selling may push down futures any time.

 

Asian traders also appear unanimous that U.S. wheat and corn futures are headed south.

 

"I think U.S. farmers will begin aggressive selling soon, and that will definitely spark bearishness in the futures market," said another trader in Taipei.

 

Spot ocean freight rates for panamax cargoes have slipped below $40 a metric tonne due to low demand and are hovering in the $38-$39/tonne range for U.S. Gulf shipments to both Seoul and Taipei.

 

Traders in both these major grain-buying nations believe there is more downside to spot ocean freight rates.

 

China Wheat Sowing Looks Fine

 

China's total winter wheat acreage reached 21.47 million hectares in the October to November planting season, almost unchanged from the same period in 2004, according to statistics posted on the Ministry of Agriculture's Web site.

 

The National Bureau of Statistics had expected winter wheat acreage to reach 21.14 million hectares, based on a survey of farmers at the beginning of the year.

 

Meanwhile, Chinese farm experts said the wheat crop hasn't suffered any damage from winter-chill, contrary to speculation among U.S. traders.

 

In India, Raj Kapoor, a farm expert, told U.S. Wheat Associates last week that the federal government is in no hurry to import wheat and may make a decision only after assessing the state of the current wheat crop, being sown at present, in March.

 

The federal government expects the wheat crop to touch 76 million tonnes in 2006, compared with 72 million tonnes in 2005.

 

The wheat crop is harvested in April and May.

 

Among major deals last week, Japan's Ministry of Agriculture, Forestry and Fisheries bought 110,000 tonnes of wheat from the U.S., Canada and Australia for January-February shipment.

 

South Korea's Dongah Flour Mills, CJ Corp., Daehan Flour Mills and YongNam Flour Mills bought a total of 21,400 tonnes of U.S. No. 1 wheat from trading house Cargill.

 

South Korea's Major Feedmill Group and Korea Feed Association bought a total of 110,000 tonnes of Canadian-origin feedwheat from trading house Concordia in private negotiations, at $134.75/tonne, cost and freight included.