June 15, 2009

The downside potential for soy prices in Asia will likely remain limited in coming days, despite a sharp correction Monday, market observers said.

 

Soy futures on the bellwether Chicago Board of Trade, which last week reached nine-month highs, will likely continue to focus on dwindling supply in the world's biggest producer, the U.S. - where old crop supply is now pegged at 2.987 million tonnes, their lowest since 1976-1977.

 

Still, there are also now signs that recent record import volumes from the world's largest importer, China, are slowing, with some traders reporting contract delays and cancellations by China-based buyers due to the recent spike in prices.

 

According to data last week, China's soy imports rose in the January-May period by 27% on year to 17.38 million metric tonnes, though imports in May were only up 1.1% on year at 3.52 million tonnes, lower than previous estimates of 4 million tonnes.

 

In Asian trading Monday, e-CBOT's July contract was down 13.60 U.S. cents at US$12.31 a bushel at 0721 GMT, though traders said a recovery in the U.S. dollar, softer equities and weaker crude prices were the main factors pressuring the market rather than fundamentals.

 

Traders said CBOT's July contract is likely to find strong support at US$12.00 a bushel, barring fresh bearish news, and immediate resistance at US$12.50 a bushel though a breach of that level would likely pave the way for another push higher, with US$13.00 a bushel the next upside target.

 

"With supply so tight in the U.S. its difficult to see the market moving significantly lower, though China has imported very strongly in recent weeks and that is now tapering off," said a senior trader with a major Tokyo-based commodities house.

 

"There is still upside potential for soy but I think the market is now looking for another catalyst for a push higher; without that the focus will stay on external factors, which in the near-term at least appear to have turned weaker, while the market is also watching China," he said.

 

In other regional grains news, local wheat purchases by state-run Food Corp. of India between April 1 and June 15 inched marginally higher than the government's target of 24.4 million metric tonnes, a government official said Monday.

 

Purchases by Food Corp. were about 11% higher than the 22.01 million tonnes bought in the same period last year.

 

Meanwhile in China, wheat prices in major producing regions fell slightly in the week to Monday, as more than half of the country's new crop has been harvested and some new wheat has already reached the market, observers said.

 

China's National Grain and Oils Information Center, an industry think-tank, on Friday kept its 2009 wheat output projection mostly unchanged at 113.2 million metric tonnes and 24 million hectares. Farmers previously feared drought-related problems would affect this year's supply, but those concerns have since largely faded.