May 14, 2011

 

Asia buyers turn to corn amid lower prices

 

 

Asian grain importers are turning to corn again as prices have taken a downturn from a record hit a month ago.

 

Japan, world's largest corn importer has now covered at least 40% of its requirements for July-September shipments.

 

So far this month, buyers may have finalised prices for around 20% of their corn import needs for the next quarter, said a Tokyo-based executive with a global commodities trading company. Japanese buyers buy corn based on a fixed premium over CBOT contracts and exercise their option to finalise prices at a date of their choosing.

 

The most active July corn futures contract on CBOT hit an eight-week low of around US$6.59/bushel Thursday (May 12), steeply lower than its record high of US$7.8875/bushel hit a month ago.

 

On a delivered basis, corn in East Asia is US$55-US$60/tonne cheaper than a month ago. US corn is still US$30/tonne costlier than Australian feed wheat, but the gap has narrowed from around US$80/tonne in mid-April.

 

"Feed millers who were shunning corn a few weeks ago, are now buying aggressively," said a Singapore-based executive with a global trading company.

 

South Korea, the world's third-largest corn importer, has snapped up at least eight cargoes of corn totaling 487,000 tonnes in just five days at prices between US$331 and US$341/tonne, cost and freight, for arrival in August and September.

 

There is market talk that even China has purchased several cargoes of US corn this week, though the deals could not be confirmed.

 

Asian buyers have also started actively buying other grains, which have also seen prices recede over the past month.

 

Late last month, buyers in South Korea purchased 275,000 tonnes of feed wheat in just two days. This week, Taiwan bought Brazilian soy, Japan has tendered for wheat and barley, South Korea's flour mills are lapping up US wheat and Southeast Asian countries are contracting purchases of Pakistan and Australian wheat.

 

Analysts said some of the aggression is linked to expectations that prices may rebound because weather woes have hit major grain exporting countries, including the US and European Union members.

 

"If physical buyers make purchases on dipping prices, it is a strong sign that prices may rise again or else they would have put off their buying," Barclays Capital Vice President Sudakshina Unnikrishnan said.

 

Near-month CBOT corn futures may rise above US$7/bushel again and will likely average US$7.30/bushel in the third quarter, she said. Wheat futures may average around US$7.70/bushel in the third quarter, she added. CBOT's most active July wheat futures contract is trading around US$7.45/bushel.