June 7, 2011


Asian grain prices rangebound on weather-related gains



Asia's grain prices are likely to be rangebound around current levels this week due to profit-taking on supply and weather-related gains, but traders will continue to look for leads from progress in US plantings.


Traders and analysts expect the most active July corn and wheat futures to trade this week in ranges of US$7.40-US$7.75 a bushel and US$7.50-US$8.00/bushel, around current prices near US$7.52/bushel and YS$7.68/bushel, respectively.


Wheat may be under some downward pressure due to recent rains in drought-hit countries in western Europe and a likely increase in exports from the Black Sea region, but the price outlook for corn is bullish because of delays in US plantings, said Nobuyuki Chino, president of Tokyo-based commodities trading company Continental.


The US, the world's largest exporter of agricultural commodities, is experiencing drought in the south, where the hard red winter wheat harvest is due, and floods in regions where plantings should be taking place.


The US will release its crop plantings progress report later on Monday (Jun 6).


"Weather-related problems will prevent any significant fall in prices, but most of the bullish news is already factored in and prices aren't going to show a big jump up either," said a Singapore-based grains trader.


Prices will move sideways in a narrow range this week, said Koname Gokon, deputy general manager at Japanese commodity brokerage Okato Shoji Co.


A narrowing gap between wheat and corn futures on CBOT has sharply reduced trades taking advantage of the spreads, he said.


Despite recent floods, many growers have continued to plant corn in anticipation of healthy returns, and the acreage in the US may turn out to be higher than initial expectations, said Karl Setzer, a US-based analyst with MaxYield Cooperative.


However, Continental's Chino said corn supply will remain tight for the next several months. Unlike wheat, in which there are several exporting countries, more than half of the global trade in corn is accounted for by the US.


Weather risks remain a source of upside price potential, as any negative implications for yields or acreage could be supportive of grains markets in an environment where the pace of US plantings, especially in the eastern corn belt, is lagging, Barclays Capital said in its weekly report.


Speculators are bullish on the grains market, with net longs in wheat and corn still on the high side, ANZ Banking Group said in a research note.


However, analysts point out that many investors tend to liquidate longs and book profits at regular intervals, taking leads from trends in the overall economy, just as they did on Friday (Jun 3) when US employment data was below expectations.


Such economic trends may keep grains prices in check this week, they said.

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