March 6, 2012

 

Asia grain prices to drop but remain strong

 

 

Asian grain prices are expected to fall lower this week as recent climbs encouraged profit-taking but the overall tone in the market remains strong, trade participants said Monday (Mar 5).

 

Soy prices have been rising for the last 10 days and are now at their highest in almost 5 months, in the process also pushing up prices of corn and wheat.

 

South Korea has purchased South American soymeal at US$429/tonne, basis cost and freight, up 13% from US$381/tonne in early January.

 

Fundamentals are strong because of the drought in major South American growing regions but a brief technical correction is on the cards, said a Singapore-based executive with a global commodity trading company.

 

Most traders expect prices to fall 5 cents-10 cents before the market starts rising again.

 

The most active May wheat, corn and soy contracts on the Chicago Board of Trade are currently trading around US$6.70, US$6.53 and US$13.25 a bushel respectively.

 

The market is now due for a correction with traders taking lead from a likely increase in US spring plantings, said Hiroyuki Kikukawa, general manager for research at Japan-based commodities brokerage Nihon Unicom.

 

Recent rains in Australia are also weighing on prices as they may give a boost to the next round of wheat plantings in April.

 

Australia's southern North South Wales is under a major flood alert with the Murrumbidgee River at Wagga Wagga expected to peak at over 10 metres by Tuesday (Mar 6), ANZ Banking Group said in a research note.

 

However, the effect of the La Nina on Australian rainfall and temperature should now start to dissipate as autumn approaches, ANZ said.

 

Medium-term outlook is bullish and soy prices may even rise above US$13.50/bushel, said an analyst with a Tokyo-based commodity brokerage.

 

Corn supply is also tight but it is being offset by a record high wheat output as the two crops are substitutes to some extent for soymeal which is an essential ingredient in animal feed, he said.

 

Traders are now waiting for the latest estimates of production and demand. The USDA will issue its monthly report on demand and supply Friday.

 

Traders expect soy and soymeal production and export forecast for South American countries to be revised down further.

 

The International Grains Council has already lowered its forecast for global soy output in 2012-13 by almost 4%.

 

The production is forecast at a three-year low of 246.5 million tonnes, down 7.6% from 2011-12 because of lower output in major producing regions.