June 30, 2008


Asia Grain Outlook on Monday: Prices may rise if USDA report bleak



Grain prices are likely to rise sharply if a U.S. Department of Agriculture planting report due late Monday projects a more-than-expected damage to U.S. corn and soybean planting due to recent floods in the Midwest.


Analysts also believe the bullishness in corn and soybean prices will continue as long as crude prices remain high.


Chris Lavigne, a Singapore-based analyst with research firm Frost & Sullivan, said the prices of corn, soybean and palm oil have a high degree of correlation with the price of crude oil, and historically have tracked it quite closely.


This is one of the reasons why the biofuels industry is unable to gain much of an advantage in terms of increased sales even when crude is so high, he added.


"As crude oil gains, so do the prices of biofuel feedstocks, which makes the production of biofuels more expensive," said Lavigne.


Even crops, such as wheat, which don't have a direct linkage to the biofuels industry, are expected to see a rise in prices on rising crude prices.


"The general increase in the commodities asset class due to rising crude will also pull up wheat prices, at a time when grain-specific factors are anyway supportive of prices," said Mark Samson, vice president for the South Asian region at U.S. Wheat Associates.


He added since wheat and corn are competing feed products, wheat prices are influenced by rising corn prices.


"Right now, the trend for wheat prices is to move sideways or slightly higher; there's very little opportunity of prices falling drastically," said Samson.


In deals last week, Chinese importers bought 7-9 cargoes of soybeans mainly from the U.S. and Brazil last week for July and August delivery, commodity consultancy Shanghai JCI said Friday.


Chinese importers didn't purchase any soybean from Argentina, given uncertainties about the farmers' strike, said Tu Xuan, an analyst at the firm.

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