June 18, 2011

 

Low prices encourage buying in East Asia's grain trade

 

 

Buying interest in wheat and corn in the East Asian physical market was heightened as a result of a sharp downward correction in global grains prices, according to trading executives.

 

Improved weather prospects in the US, a slowdown in demand by importers in the past month and concerns over the health of the global economy, have combined to drag grain prices lower all week.

 

Overall supply-demand fundamentals of grains remain strong, so prices could rise again, indicating that the latest downward correction is a good opportunity for buyers to lock in at least some of their purchases, said a Singapore-based executive with a global commodities trading company.

 

Japan has already bought some wheat, and South Korea is now seeking wheat and corn, he said. The two countries are among the world's largest importers of feed grain, producing around 42 million tonnes of compound animal feed annually.

 

Wheat prices on the Chicago Board of Trade are at their lowest in three months, with the near-month July contract trading around US$6.64 a bushel.

 

Traders said South Korean buyers are seeking at least 10 cargoes totalling 330,000 tonnes of feed corn and 220,000 tonnes of wheat in separate tenders. On Thursday (Jun 16), they purchased a cargo of 55,000 tonnes of food-grade corn at US$358.37 a tonne on a cost-and-freight basis.

 

South Korea's last major corn purchase was a month earlier, when buyers snapped up close to half a million tonnes at US$331-US$341/tonne, C&F, for arrival in the next quarter. At the time, corn futures on the Chicago Board of Trade had slumped by more than US$1/bushel to around US$6.65/bushel.

 

CBOT July corn futures are trading around US$7.0250 a bushel, down 12% from the record high of US$7.9975/bushel hit June 10. They briefly even fell below US$7/bushel as investors rushed to liquidate longs amid improved weather prospects in the US and sluggish demand.

 

Japan has stepped up imports of wheat to meet domestic demand. "Buyers who weren't willing to discuss fresh purchases are now making enquiries," said a Tokyo-based executive with a grains trading company.

 

Japan's Ministry of Agriculture, Forestry and Fisheries Thursday bought 259,303 tonnes of milling-quality grain for shipment in August. It is unusual for Japan to seek such a large quantity in a single tender, but the official said it is due to strong demand from the wheat processing industry.

 

Japan also bought 42,480 tonnes of feed wheat Wednesday in a sell-buy-sell tender. Traders said there is renewed buying interest in feed wheat because it is trading at a discount to corn.

 

Five of the previous eight weekly SBS tenders for feed grain were cancelled due to a lack of buyers and sellers, and only 7,250 tonnes of wheat was purchased in the rest.

 

In other news, Pakistan's wheat exports have hit a record high of two million tonnes and may reach three million tonnes by early August, said Muhammed Najib Balagamwalla, chairman of the SeaTrade Group, a Karachi-based commodities trading company.

 

The country has also sold around 32,000 tonnes of corn in recent weeks, for containerised shipment to Southeast Asia and United Arab Emirates, for around US$300/tonne, free on board.