January 19, 2012

 

Lower Asian grain prices expected on supply hopes, soft demand

 

 

Asian grain prices will fluctuate between stable and lower for the next few days due to greater-than-anticipated availability and poor demand, trade participants said.

 

Recent rains in South America have also assuaged concerns about the size of corn and soy crops in countries such as Brazil and Argentina.

 

Most traders put the downside potential at US$0.20 for near-month March wheat, corn and soy futures on CBOT. The contracts are now trading around US$6, US$6.02 and US$11.76 a bushel, respectively.

 

"The market is delicately poised at the moment but there is a downward bias because of a psychological perception of a supply pressure," a Singapore-based executive with a global commodities trading company said.

 

He said the excitement over the USDA's monthly report issued last Thursday (Jan 12), which estimated corn and soy stocks above expectations, is yet to die down.

 

Traders seemed to have underestimated the use of dried distillers' grains with solubles, or DDGS, and wheat as animal feed, as that slowed down corn demand, Karl Setzer, an Iowa-based analyst with MaxYield Cooperative, said.

 

Corn use as animal feed in the US during the September-November period fell 12% from a year ago to hit a 16-year low, he said.

 

Another trader said prices may start easing after the overnight spell of short covering Tuesday (Jan 17).

 

Investors are nervous at the moment, particular due to uncertainty over the weather in South America, where crops are in the development stage, Koname Gokon, Tokyo-based Deputy General Manager at Okato Shoji Co, said.

 

He said many investors are reluctant to take long positions in agricultural commodity futures.

 

The main region to watch is South America and prices can move either way in the next few weeks depending on the weather there, Hiroyuki Kikukawa, general manager for research at Japan-based commodities brokerage Nihon Unicom, said.

 

Rainfall last week in Brazil helped alleviate short-term concerns in most areas, but southern Brazil is expected to dry out again this week, ANZ Banking Group said in a research note.

 

In Argentina, around 25% of the corn and soy belt was disappointed with last week's rain, but these may get relief by the weekend, it said.

 

Weather appears to be moderating in South America, which is tempering bullish sentiment, Setzer said.