January 12, 2012

 

 

Due to demand in the physical market and technical buying ahead of the release of a key report in the US, Asian grain prices are likely to be steady or higher in the next two days, market participants said.

 

Some said they expect prices to ease a bit next week on profit-taking.

 

The USDA will revise its estimates for domestic and global demand and supply for various crops in a monthly report due Thursday (Jan 12).

 

Traders have assiduously built long positions in recent weeks due to expectations that the USDA will slash its output projections for Brazil and Argentina because of bad weather, said a Singapore-based executive with a global commodities trading company.

 

Net speculative longs in US agricultural futures more than tripled in the week from December 27 to January 3, to an equivalent of 13.4 million tonnes from 3.64 million tonnes, ANZ Banking Group said in a note to clients, citing data from the Commodity Futures Trading Commission.

 

Prolonged dry weather in Argentina and Brazil, where soy and corn crops are in the development stage, is threatening their ability to offset tight supply from the US, the world's biggest exporter of the two commodities.

 

Traders and analysts said they expect prices for wheat, corn and soy to rise by up to another US$0.20/bushel for each before profit-taking provides a breather. Most-active March futures contracts for wheat, corn and soy are around US$6.38, US$6.50 and US$12.28 a bushel, respectively.

 

However, the market may have partly priced in the weather's effects in Argentina and Brazil, and prices may fall next week before resuming their climb, another trader in Singapore said.

 

There is ample wheat available in the US, the Black Sea region and Australia but wheat prices are riding piggyback on the tight supply of corn and soy, a commodities analyst in Tokyo said.

 

Wheat is again trading at a discount to corn on CBOT due to this difference in supply. However, in the physical market, buyers are already paying more for wheat than a few weeks ago because it is a direct substitute for corn in animal feed.

 

South Korea's largest feed miller, Nonghyup Feed Inc., has contracted deals for 165,000 tonnes feed wheat since Friday at US$262-267/tonne, basis cost and freight, compared with a mid-November purchase at US$254.50/tonne.

 

One of its wheat purchases is for end-May arrival, indicating an interest in meeting requirements in advance due to rising prices. It has also purchased 118,000 tonnes of corn and 55,000 tonnes of soymeal this week, setting the tone for other importers to follow suit.