June 25, 2011

 

Asia's grain prices set to pick up

 

 

Asian grain prices may recover slightly next week on the back of fresh buying support after a downtrend for nearly two weeks, trade participants said Friday (Jun 24).

 

Wheat and corn futures on the Chicago Board of Trade may gain up to 25 cents a bushel by early next week, they said, despite the International Energy Agency's announcement that its members will release 60 million barrels of crude oil from strategic reserves over the next month to make up for lost Libyan output.

 

The extra barrels will not be reducing demand for corn to make ethanol, said a Tokyo-based executive with a commodities brokerage. Still, "industry players who were expecting some additional push for biofuel production because of the Libyan imbroglio will be disappointed."

 

Another trader noted that with corn and wheat prices having already declined sharply, further downside potential is extremely limited.

 

Corn prices hit a six-week low this week, just two weeks after the near-month July contract on the Chicago Board of Trade set a record high of US$7.9975/bushel on June 10. The contract is trading around US$6.95/bushel, and most traders expect it to rise to US$7/bushel in the next few days.

 

CBOT wheat futures, which hit an 11-month low this week, are also on a recovery path, with the near-month July contract having risen as high as US$6.5925/bushel,up 10.25 cents from the overnight settlement.

 

Grain markets have been under pressure in recent weeks due to long liquidation by funds, but this is mostly technical, said Karl Setzer, a US-based analyst with MaxYield Cooperative.

 

Most traders and analysts say the market is oversold and ripe for a rally. "Those investors who have sold the market down are now expected to buy back again," said a Singapore-based executive with a global commodities trading company.

 

However, traders expect the current discount of wheat to corn for near-month futures on the Chicago Board of Trade to continue.

 

Supply of wheat is ample, whereas corn inventories in the US are projected by the government at a 15-year low by the end of August.

 

Unlike corn, in which the US accounts for more than half of the global trade, wheat is in surplus and amply available from Russia, Ukraine and Australia. This is likely to offset lower exports from drought-hit Western Europe and the US south.

 

Traders in Australia have even started offering wheat for December-January shipment from its 2011-12 crop, which will only be harvested in the fourth quarter.

 

A 35-40 cents/bushel discount of CBOT near-month wheat to corn can be sustained for the time being, said a trader in Singapore.

 

Australian General Purpose wheat with 9% protein was offered Thursday around US$299 a tonne, Australian Standard White with 9% protein around US$309/tonne and Australian Premium White with 10.5% protein around US$319/tonne, free on board for December-January shipment in bulk from the east coast, traders said. Offers from the west coast are typically at least US$10/tonne higher than from the east coast, they said.

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