July 19, 2011

 

US weather causes Asian traders to stay on sidelines

 

 

Asian grain traders are closely watching US weather as extreme heat threatens to impact the crop and push up already-high corn and soy prices.

 

"It's not just fundamentals that are pushing up prices but also external factors, such as high prices of other commodities like crude oil. It's really hard to say a reasonable level is right now," a Taipei-based trader at a global trading firm said.

 

Hot weather is expected to blanket the central US corn belt as the crop enters the critical yield development stage of pollination. Extreme heat is forecast for the next five to seven days, a stressful situation for US crops at their crucial reproductive phase.

 

US corn futures on the Chicago Board of Trade rallied on Friday (Jul 15), with traders continuing to add risk premium, as Midwest crops face yield-threatening heat and dryness in the next week.

 

CBOT soy futures also ended higher as the lingering heat poses a higher risk to soy crops, which are a few weeks away from the critical yield development stage in August.

 

Weather models on Friday showed that there was a potential for a break in the Midwest heat wave within a week, adding to uncertainty.

 

Singapore-based brokerage Phillip Futures said investors can expect volatile price movements in corn, which will take cues from weather concerns.

 

Meanwhile, traders in Japan, South Korea, and Taiwan said the physical market is relatively quiet now as they wait to see how the weather fears play out.

 

The Japanese market was closed on Monday (Jul 18) for a public holiday. In South Korea, traders said on Friday that the Korea Feed Association is waiting for prices to fall before committing to deals.

 

In Taiwan, traders are adopting a "hand-to-mouth" strategy, buying when the need arises regardless of price, the trader in Taipei said, adding that Taiwan is plagued by high inventories across most grain categories.

 

"The buying schedule is very, very tight. It's end-July and we still haven't bought any wheat for September shipment. Our corn and soy purchases are also for September shipment - contrast this with China, which has shipments pending all up to next year, and South Korea, which has shipments all the way to November and December," he said.

 

He said traders are expected to stay on the sidelines as demand has also fallen due to seasonal factors and farmers are lowering livestock production due to high feed grain prices.