January 14, 2012

 

Supply pressures to weigh on Asia's grain market

 

 

In view of higher-than-expected supply, especially corn, Asian grain prices are likely to fall in the coming weeks, according to market participants.

 

Traders and analysts said they expect the prices of wheat, corn and soy each to fall by up to 40 cents a bushel in the near term, and for physical importers to remain on the sidelines in anticipation of the decline.

 

Most-active wheat, corn and soy futures contracts for March delivery on the Chicago Board of Trade are trading around US$6.09, US$6.13 and US$11.90 a bushel, respectively.

 

In a monthly report Thursday (Jan 12), the USDA revised up by 1.2 million tonnes its estimates for US corn output in the marketing year that started September. 1. It also raised its forecast for global year-end closing corn stocks by almost one million tonnes.

 

The USDA also raised its estimate of US soy output, and lowered its projection for global output due to dry weather currently hitting crops in Argentina and Brazil.

 

"Supply of corn and soy is still tight and may even squeeze further due to the weather problems in South America but since the USDA numbers are above trade expectations, it has damped the market sentiment," said an analyst with a Singapore-based commodities brokerage.

 

Data showed that as of December 1, the US stocks held 250 million more bushels of corn and 40 million more bushels of soy than expected by the market, said Karl Setzer, an Iowa-based analyst with MaxYield Cooperative.

 

He said grains buyers in the cash market will now hesitate to finalise deals due to greater supply.

 

The USDA data surprised many, and March corn futures may test US$5.80/bushel in the next two weeks, in the process dragging down wheat to US$5.70/bushel, said Hiroyuki Kikukawa, general manager for research at Japan-based commodities brokerage Nihon Unicom.

 

Earlier, investors bought wheat futures to take advantage of wheat's discount to corn on the CBOT but many are now liquidating those positions, Okato Shoji Co. Deputy General Manager Koname Gokon said.

 

In the cash market, buyers in East Asia who were previously scrambling to make purchases have now become cautious. South Korea's largest feed miller, Nonghyup Feed Inc., or Nofi, purchased at least 338,000 tonnes of wheat, corn, soymeal since January 6, but such aggressive purchases are now unlikely.