January 4, 2011
Supply concerns still dominate Asian grain trade in 2011
Supply concerns will remain to be the major factor in the Asian grains trade in the New Year, as traders and analysts brace for uncertain global weather conditions.
On Monday (Jan 3), wheat futures on the CBOT extended gains in electronic trade during Asian trading hours, with gains in contracts for March delivery of as much as 2.1% due to weather-related concerns.
CBOT March wheat had closed 1.2% higher at US$7.94 1/4 a bushel Friday (Dec 31) – up nearly 47% in 2010 – due to concerns that poor weather could hurt output this year and to spill over support from other markets.
Although the wheat crop in Argentina hasn't been hurt much yet by an ongoing drought, traders are still nervous about the crop's pollination, and key growing areas including the US Plains, China and Russia are also too dry. The threats to this year's output follow a series of weather disasters that drove up prices in 2010, including a devastating drought in Ukraine and Russia and excessive rains in eastern Australia.
Recent heavy rainfall and widespread flooding in Australia's New South Wales and Queensland states could be "just the start" of weather disruptions to agriculture, with bad weather likely to continue as the wet season approaches an industry representative said last week, adding that total damages to the sector were set to rise above AUD1 billion.
In the corn market, prices were a tad lower in Asian hours after ending the year at a fresh 29-month high. Prices have been climbing due to concerns over the development of the crop in Argentina and US dollar weakness.
Expectations that China will be buying more corn this year and worrying outlook for crops in South America, coming on top of problems in the US and the Ukrainian and Russian plains in 2010, have put global supplies in a precarious state, analysts said.
Corn demand from China's downstream processing industry will likely increase next year as the rise of large-scale hog farms creates intense pressure in feedmeal markets, Deputy Agriculture Minister Wei Chaoan said Thursday (Dec 30).
Wei's comments highlight China's pressing need for corn imports, which, despite a robust harvest, hasn't abated since the country broke a 15-year run of self-sufficiency to import more than 1.5 million tonnes of US corn last year.
Singapore-based brokerage Phillip Futures expects CBOT corn to extend its rally in the first trading day of the year, as La Nina-related dryness continues to threaten corn production in Argentina.
"Output could fall if dry weather persists when more crops enter the pollination stage of development," the brokerage said Monday (Jan 3).
Overall, Monday's (Jan 3) trade in Asia was quiet as some markets were still closed for the New Year holidays. Volume is expected to pick up in the week, but Japan's Ministry of Agriculture, Forestry and Fisheries isn't expected to resume its regular tenders until next week, an official said.
