April 7, 2011

 

China's corn, wheat prices expected to rise

China's corn and wheat prices are likely to rise for the next few weeks due to tight supplies in exporting countries, trading executives said Wednesday (April 6).

 

US, the world's largest grains exporter is expected to see a large expansion in plantings this year, but that could potentially translate into higher availability only during the second half of the year. Until then, supply will remain tight for corn and high quality milling wheat.

 

"Last week's purchase of US milling wheat by Taiwan above US$550 per tonne shows that the bins do not have grain at the moment," said a Singapore-based executive with a global trading company.

 

The Taiwan Flour Millers' Association (TFMA) has bought two cargoes totalling 69,320 tonnes of US wheat, for shipment in April and May. Although Taiwan buys small volumes, prices of the high-quality milling grain imported by TFMA are widely considered a benchmark in Asian grain trade.

 

Last week, TFMA bought dark northern spring wheat with 14% protein around US$564 per tonne, on a cost-and-freight basis. The former price was one of the highest paid by any buyer worldwide in the last three years.

 

TFMA bought northern spring grade with 14% protein around US$537 per tonne and US$521 per tonne, on a cost-and-freight basis. TFMA also bought northern spring grade with 13% protein around US$443 per tonne, hard red winter grade around US$446 per tonne and US$422 per tonne for 13% and 12.5% protein, respectively, and western white grade around US$350 per tonne.

 

Most traders and analysts expect wheat prices to rise above US$8 per bushel again this month. The May wheat futures contract, the most active on the CBOT, was at US$7.90 per bushel around 0805 GMT.

 

Wheat crop conditions in the US are also a cause of concern. The initial official weekly crop rating put 37% of the hard red winter wheat crop in the good or excellent category, said Karl Setzer, a US-based analyst with MaxYield Cooperative. He said this is the lowest initial wheat rating since 31% good or excellent in 2002, and the 4th lowest rating since 1989.

 

Analysts also expect a lowering of the projections for end-August closing stocks of corn when the USDA issues its monthly report on demand and supply later this week.

 

The price outlook for corn is bullish and prices may test new record highs after the USDA report is released, said Koname Gokon, deputy general manager at Japanese commodity brokerage Okato Shoji Co. He said CBOT corn futures may test US$7.80 per bushel soon.

 

The most-active May corn futures contract hit a new record high of US$7.70 3/4 a bushel Tuesday (April 6), and has increased by almost US$1 per bushel in the past week. It was at US$7.62 3/4 a bushel around 0805 GMT.

 

Commodity funds purchased around 12,000 CBOT corn futures contracts on Tuesday.

 

In the physical market, any corn purchases by China or confirmation of earlier deals will also be bullish for the markets. China was a fringe player in the global corn trade until last year, when it imported 1.6 million tonnes. Chinese sources say that state corn reserve levels are 10 million to 12 million tonnes lower than previously thought, said Thomas Dorr, president of the US Grains Council.

 

The USDA in March pegged China's end-of-season corn inventories at 60.11 million tonnes, and the numbers are due for revision this week. Dorr, who recently visited China, said that the country may import another two million to three million tonnes of corn by end-August. "Chinese buyers would ideally like five million to seven million tonnes of imported corn but realise that present global inventories may not accommodate this added demand," Dorr said.