March 8, 2012

 

Lower South American crops to buoy Asian grain prices

 

 

Asian grain prices may climb in the near term ahead of a USDA monthly report, which is likely to show lower corn and soy stock forecast, trade participants said.

 

The report is scheduled for release Friday (Mar 9).

 

Investors are going long on soy, hoping to take profits after the USDA report is issued, said Kaname Gokon, the Tokyo-based deputy general manager at Okato Shoji Co.

 

South American soy and corn crops have been badly hit by drought and harvest is due to start later this month.

 

Most traders expect the prices of soy, corn and wheat to rise US$0.05 to US$0.10 a bushel after a round of profit-taking this week. The most active May contract for the three commodities on the Chicago Board of Trade is trading around US$13.34, US$6.54 and US$6.57 a bushel, respectively.

 

Prices will move in a tight range until the USDA releases its report, Gokon said.

 

In its February report, the USDA forecast US soy carryover inventory of 7.5 million tonnes as of August 31 this year.

 

Analysts expect the USDA to lower this number Friday as importers, have turned to the US to meet their needs because of expected tight supply in South America.

 

Last month, USDA cut its forecasts for Argentina's and Brazil's soy output by 2.5 million and two million tonnes, respectively, to 48 million and 72 million tonnes, for the marketing year ending September 30. Market participants now expect further reductions.

 

Most analysts are projecting a Brazilian soy crop of 69-70 million tonnes, said Karl Setzer, an Iowa-based analyst with MaxYield Cooperative.

 

They also expect a reduction in US corn inventories due to higher demand resulting from the South American drought, though the downward revision may be partly offset by greater use of wheat as animal feed.

 

The supplies of corn and soy are expected to remain tight until the next US harvest from September, said a Singapore-based executive with a global commodity trading company.

 

Speculators are selling November soy and December corn on CBOT while going long on May contracts, Gokon said.

 

CBOT May corn is trading at a premium of around US$0.09 to December and May soy are at a premium of US$0.44 to the November contract.

 

Many investors are also rolling over their positions from March to May on CBOT as the former is due to expire by the middle of this month.