July 16, 2011


Soaring corn prices slow down Asian trade



Sharp corn price hikes have slowed trade in Asia, with physical traders on the sidelines waiting for prices to decline before committing to deals, on weather concerns, USDA data and strong Chinese demand.


"Everyone is concerned about the hot weather and how it will take production down below normal levels...but I think the market is overly sensitive and prices are overdone," Nobuyuki Chino, president of Tokyo-based grains trading firm Continental Rice Corporation, said.


Trade participants are concerned about scorching weather in the central US corn belt, along with forecasts for more heat, as the crop is now in pollination season. A fall in output would further reduce supplies, which are already tight as indicated by the latest USDA data released Tuesday (Jul 12).


The USDA said the country's corn output is estimated to reach 870 million bushels in the 2011-12 marketing year, up from a June estimate of 695 million bushels and below the forecast of 880 million bushels for 2010-11.


The marketing year runs from September to August.


The year-on-year drop indicates farmers won't be able to rebuild stocks, which are projected to reach a 15-year low this year due to strong demand.


The USDA raised its forecast for China's imports of US corn and the amount of corn that will be used domestically to produce ethanol.


However, Continental Rice's Chino said, prices may have "peaked," noting that CBOT corn is now around US$7 a bushel - about double from a year ago. On Thursday (Jul 14), CBOT December corn ended at US$6.78 1/2 a bushel.


"Prices should come to around US$6.50. If the weather is normal, by end-September corn futures should come down to US$6, and touch US$5.50/bushel by November," he said.


In South Korea, traders said the Korea Feed Association is waiting for prices to fall before committing to deals. The association, South Korea's biggest grain-buying group, hasn't issued any grains tender this week.


Last week, China bought 540,000 tonnes of US corn for delivery after August, the USDA said. The department has also raised its estimates for corn exports to China.


"China may continue buying until mid-August when it's pollination season in the country and everyone will be watching the weather there," Chino said.


Even if the weather is adverse, Chinese imports may not exceed six million tonnes this year, which is still a relatively small amount compared with US production, he added.


The USDA said Tuesday (Jul 12) that farmers are expected to harvest 13.47 billion bushels or 340 million tonnes of corn this year.

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