July 28, 2011

 

Asia's grain market lacks direction

 

 

The market trend for Asian grains is likely to remain uncertain for at least a week amid uncertainty over US debt, according to trade participants.

 

Grain prices will likely stay in recent ranges for the next few days with investors cautious ahead of an August 2 deadline for a deal to raise the US debt ceiling, according to a Dow Jones report.

 

However, it is uncertain which way grains prices will go even if Democrats and Republicans break their deadlock on the borrowing limit and avoid the fallout of a potential sovereign-debt downgrade, as the impact of hot weather in US producing areas earlier this month could be negated by rainfall.

 

"It is highly unlikely that the US will default on its debt repayments, but since many buyers of US grains such as China also hold a portion of its debt, it has made everyone jittery," said a Singapore-based executive with a global commodities trading company.

 

Most traders and analysts put immediate support for both the bellwether September wheat and corn futures contracts on the Chicago Board of Trade at US$6.80 a bushel.

 

The Singapore-based trader said that the concerns about the impact of the recent hot weather on crop quality are countering downward pressure from the uncertainty over US debt, but with rains expected, it is not certain how long this support will last.

 

Rains are on track to hit the northern corn belt through to the weekend, although Illinois, the most stressed of the major corn and soybean states, will mostly miss out on the heavy rainfall, ANZ Banking Group said in a research note.

 

The market is pulling in different directions due to conflicting leads, said a trader in Japan.

 

Many Asian grains investors are not taking new positions in CBOT futures because of a lack of fresh directional cues, and this may also help keep prices rangebound, said Koname Gokon, deputy general manager at Japanese commodity brokerage Okato Shoji Co.

 

While potentially lower availability of wheat from the US could be offset by higher supply from the Black Sea region and Australia, the US accounts for more than half of the global corn trade, so replacing its output would not be as easy.

 

Private trade forecasts that the US corn crop will not be large enough to cover projected needs - which would drag down inventories to a critical level of 18 million tonnes - are keeping prices close to the psychological level of US$7/bushel.