February 9, 2012

 

Asia's grain prices may rise ahead of USDA report

 

 

Asia grain prices are likely to climb higher over the next two days as traders wait for fresh leads from USDA's key monthly supply-and-demand report, according to trade participants.

 

"After profit-taking on Tuesday (Feb 7), the market is ripe for another near-term rally," a Singapore-based executive with a global commodity trading company said.

 

Most traders expect near-term wheat, corn and soy futures on the Chicago Board of Trade to rise by up to US$0.08 a bushel ahead of the USDA report, which is scheduled to be released Thursday.

 

The three contracts are currently trading around US$6.67, US$6.47 and US$12.40 a bushel, respectively.

 

The outlook is bullish for the rest of the week and corn prices may briefly even test US$6.70/bushel later this month, Hiroyuki Kikukawa, general manager for research at Japan-based commodities brokerage Nihon Unicom said.

 

The USDA is widely expected to cut soy and corn production estimates for South America, ANZ Banking Group said in a research note.

 

Last month, the USDA estimated Argentina's 2012 corn and soy output at 26 million and 50.5 million tonnes, while putting Brazil's production at 61 million tonnes and 74 million tonnes, respectively.

 

Traders in East Asia said they expect the USDA to revise output for the two grains in Argentina down by 4.0 million tonnes and 2.0 million tonnes. According to them, Brazil is expected to lower its forecast for corn and soy to below 60 million tonnes and 71.5 million tonnes respectively.

 

China's demand for US soy will likely rise because of lower output in South America, Kikukawa said.

 

It is possible that Thursday's report will show a higher forecast for US corn exports, but the wild card in overall supply and demand will be the outlook for US ethanol production, said Karl Setzer, an Iowa-based analyst with MaxYield Cooperative. Corn is the basic feedstock used to manufacture ethanol.

 

However, traders said that any price gains may be short-lived because a large part of South America's projected losses are already priced in.

 

Speculators may drive up the prices in the euphoric run-up to the USDA report, but they are likely to start taking profits by late Friday or early next week, said a commodities broker in Seoul.

 

Recent rains have helped the late-planted corn crop in Argentina, Setzer said.