April 24, 2012

Asia's soy premium to corn may expand

Due to a bullish outlook, soy's premium to corn is likely to widen in the next few weeks, trading executives and analysts said Monday (Apr 23).

Near-month soy futures for May delivery on the Chicago Board of Trade briefly rose above US$14.50/bushel Monday before profit-taking set in, dragging down the contract to US$14.45/bushel.

CBOT May corn futures are trading around US$6.15/bushel. Most traders and analysts expect the spread between near-month corn and soy to widen to US$8.40-8.50 a bushel.

"It all depends on the weather in the US Midwest. If corn plantings proceed smoothly, prices can come under pressure and spreads with soy can widen," said a Singapore-based executive with a global commodity trading company.

Expanded corn plantings in European countries such as Ukraine will also weigh on prices, he said.

Soy has more potential upside than corn or wheat, said Kaname Gokon, Tokyo-based deputy general manager at Okato Shoji Co. Drought has affected soy supply from South America and the next US crop will arrive only by September, adding up to a bullish outlook, although there will be regular profit-taking including this week, another trader in Singapore said.

Near-month CBOT soy futures may test the 2011 peak of US$14.55/bushel, said Hiroyuki Kikukawa, general manager for research at Japan-based commodities brokerage Nihon Unicom.

Speculation that China is buying old crop soy has also pushed up prices, ANZ Banking Group said in a research note. Analysts point out that even corn's old crop supply outlook is tight in the US, the world's largest exporter, but to an extent it has been offset by larger sales from Ukraine. Ukraine's corn output and exports in the current marketing year to June 30 are projected to almost double to 22.8 million and 10.5 million tonnes, respectively, according to the International Grains Council.

The USDA has forecast US corn stocks at end-August at a 16-year low of 20 million tonnes. Corn inventories are also under stress due to recent purchases by China, traders said, but domestic use for ethanol and animal feed in the US is likely to be below expectations.

US ongoing corn plantings are forecast at their highest in more than seven decades, which can boost output that was hit by unfavourable weather and yields in the last two years.