January 6, 2010

 

Asia Grain Outlook on Wednesday: Soy, corn to gain on investment demand

 

 

Soy and corn are expected to rise further on the back of strong investment demand, even if fundamentals aren't price-supportive, traders and analysts said Wednesday.

 

"People are talking about index rebalancing and the weather in the U.S., which can send prices higher now, but a more important factor is that the vast sums of money around the world are looking for investments," said an analyst at a major global commodities trading house in Beijing.

 

"Looking ahead, fundamentals will play a smaller role in deciding prices" compared with the past, he said, adding soy are targeting US$13 a bushel and corn US$5.50/bushel.

 

Benchmark March soy futures on the Chicago Board of Trade were up 0.3% at US$10.64/bushel at 0658 GMT. March corn futures were 0.4% higher at US$4.20/bushel.

 

Meanwhile, analysts are citing a winter freeze in the U.S. Midwest and fund buying due to the rebalancing of commodity indices as major drivers of soy and corn prices.

 

"Commodities are good investments for hedging against inflation, after countries around the world printed massive amounts of money," said an executive at an agricultural trading house.

 

Those commodities with favorable fundamentals attract more money, but even if they aren't particularly good, there will still be money pouring in, he added.

 

Compared with the gains in base metals last year, agricultural products lagged far behind, so analysts said they expect the agriculture complex to play catch-up this year.

 

"I'm not particularly worried about the impact of South America's soy crop. It will only have a temporary, minor impact on prices," said the analyst.

 

Therefore, for soy, the battle between strong Chinese imports and the rebound of the South American crop might only affect prices from day to day, and if you look at three months or six months ahead, the story is still about the massive amount of money looking for things to buy, he added.