July 2, 2011

 

Asia grain outlook: Lower US prices to drive physical buying

 

 

Falling US grain prices will likely boost buying further in Asia next week, trading executives and analysts said Friday (Jul 1).

 

They said China was aggressively seeking up to one million tonnes of corn this week and may step up purchases in July to take advantage of lower prices.

 

East Asian buyers including China, Japan and South Korea have purchased more than two million tonnes of corn since June 16.

 

"There is still some more downside potential in prices, but at current levels we will see strong import demand in the cash market," experts said.

 

The near-month July corn futures contract on the Chicago Board of Trade fell as much as 12% Thursday and ended at a 3.5-month low after the USDA revised upward its acreage estimate for the grain and put inventory levels well above analysts' expectations. This dragged down wheat and soy prices as well.

 

Corn extended losses during the Asian trading hours, with the most active December contract trading as much as 6.3% lower, at US$5.8150/bushel. CBOT December wheat was trading 0.8% higher at US$6.63/bushel in Asia after plummeting 8.4% overnight.

 

Most traders put immediate support for December wheat and corn futures on CBOT at US$6.60/bushel and US$5.80/bushel, respectively.

 

Gains are likely next week due to short-covering, analysts said, who deemed current levels a good opportunity to lock in deals.

 

Traders, shipping executives and cargo surveyors earlier this week said China has purchased at least 700,000 tonnes of corn in recent weeks, taking its total purchases since March to 1.7 million tonnes.

 

More business is in the pipeline, and although the figure could not immediately be confirmed, there is speculation that China has made deals for a further 800,000 tonnes, they said.

 

Buyers are on the sidelines Friday, but if wheat and corn prices fall further during the US trading day, buyers will move in to snap up more cargoes next week, said an importer in Seoul.

 

Based on futures prices, physical corn prices for December arrival will be close to US$325/tonne, cost and freight - around US$60-$65/tonne lower than three weeks ago, when near-month CBOT futures hit a record high.

 

On Wednesday, South Korea bought feed wheat of optional origin - likely to be supplied from Australia - at US$273.90/tonne, C&F, for end-October and November shipment. A similar deal would likely be done at less than US$260/tonne now, traders said.

 

However, most sellers are not offering grains because of market volatility.

 

"Due to the sharp plunge in prices, it doesn't make sense to trade physical cargoes, and exporters are hoping for a recovery," a Singapore-based trader said.