March 3, 2011

 

Asian grain prices may be rangebound with sliding pressure

 

 

Asia's grain prices is seen to be rangebound with some sliding pressure for the rest of the week, taking leads from South American soy supply pressure, easing of drought concerns in China, FMD in South Korea and ample wheat supply in Australia.

 

After gains for several months, grain prices eased over the last two weeks and another strong rally seems unlikely for now, said trade participants.

 

"The market is now in consolidation mode and grain prices will mostly move around current levels for the next few days," said a Singapore-based executive with a global trading company.

 

Grain prices will mostly move sideways and the trading range is expected to be narrow, said Koname Gokon, deputy general manager at Japanese commodity brokerage Okato Shoji Co.

 

Most traders and analysts expect the most-active May soy futures on the Chicago Board of Trade to move in a range of US$13.75-$14 a bushel, May wheat between US$7.95 and US$8.20 and May corn at US$7.20-$7.50.

 

Gokon said the soy harvest in South America has eased the demand pressure on the US and may cap prices at US$14 a bushel.

 

International Grains Council (IGC) has raised its estimate for 2010-11 global soy production by 2.8 million metric tonnes to 258.9 million tonnes due to improved prospects in South America. Brazil's soy harvest may hit an all-time high of 70.1 million tonnes.

 

Higher exports by Brazil and Paraguay will more than offset a marginal fall in exports by Argentina.

 

After last month's downward correction in grain prices, investors are now hesitant to build up a large portfolio of long positions and promptly book profits even on small gains, and this is keeping a check on prices, said an analyst in Japan.

 

He said fundamentals may be strong but there are leads pointing towards prices remaining under check such as the devastating foot-and-mouth disease in South Korea, which will drag down the country's corn and soymeal imports.

 

IGC has lowered its forecast for South Korea's soymeal imports in the year to September 30 by 300,000 tonnes. South Korea's imports of soymeal may fall 10% to 1.8 million tonnes, the IGC said.

 

South Korea is the world's third-largest importer of corn and its frequency of tenders has slowed down in recent months as the country has culled close to 9 million poultry animals, hogs and cattle to tackle the disease.

 

Though corn inventories are tight globally, some of the demand has shifted to feed wheat because of the ample supply of lower grades in Australia where the crop was damaged by floods. Wheat and corn are direct substitutes for each other in animal feed.

 

In wheat, drought in China was one of the reasons for last month's rally and IGC has raised its forecast for the country's imports of the grain by 50% to 1.5 million tonnes in the year to June.

 

However, recent snow and precipitation have improved the situation significantly in China's wheat growing areas; though the country is purchasing Australian wheat, the purchases aren't big enough so far to affect the global balance sheet.