April 28, 2011
 

US grains decrease amid China rate hike fears

 

 

Due to concerns regarding rising inflation in China which could result in another interest rate hike this year ahead of a US Federal Reserve rate decision this week, CBOT corn, wheat and soy decreased on Tuesday (Apr 26) after a 3% increase in the previous session.

 

Front-month CBOT wheat prices fell nearly 1.9% to US$8.10-1/2 a bushel after prices rallied on Monday (Apr 25) over a lack of rain for the US hard red winter wheat in the southwest. CBOT corn dropped more than 1% to US$7.54-1/2 a bushel.

 

Soy also lost more than 1% to US$13.75-1/2.

 

China has moved aggressively this year to cool inflation and surprised markets by announcing interest rate hikes and increases in the amount of cash banks must hold in reserves at odd times such as weekends and over holidays, leaving investors concerned Beijing may use the May 2 long weekend to announce additional tightening.

 

The Federal Reserve is not expected to cut interest rates or change its US$600 million bond buying programme, but a groundbreaking press conference by Chairman Ben Bernanke after the rate decision is expected to set a tone for markets leading to profit taking on Tuesday (Apr 26), market players said.

 

"CBOT trading weakened amid a wide commodities sell-off ahead of the Fed meeting," said Ricky Chan, senior account manager with ADMIS Hong Kong Limited.

 

"There is also market talk that China may raise interest rate again to curb inflation, which has also pressured metals and stock markets."

 

The media reported that China's annual inflation could edge up to 5.5% in April, giving the central bank scope to further tighten monetary policy.

 

Asian shares pulled back from recent three-year peaks while commodity prices succumbed to a bout of profit-taking after silver fell more than 3%.

 

The dollar strengthened against a basket of currencies on Tuesday (Apr 26), also pressuring prices downward. A stronger dollar weighs on greenback-priced commodities.

 

Soy also faces pressure from a big harvest in Brazil and Argentina and a slowdown in imports by China, the world's top soy importer.

 

"A large South American supply of 10 million tonnes more than earlier expected, in addition to Chinese government sales of three million tonnes of reserves, do not support CBOT soy prices at the current level," said an analyst.

 

But traders expect China's soy demand to pick up in the second half of the year as animal feed production gets into full swing, spurring soymeal demand.

 

Corn planting virtually stalled in key growing states around the US Midwest last week on excessive rains. Farmers had planted 9% of their anticipated corn acreage by April 24, lower than the 13% analysts had expected.