August 6, 2011

 

Weaker Asian grain prices to stoke physical buying

 

 

Lower Asian grain prices expected over the next few days due to global recovery concern may spur buying interest in the physical market as Asian buyers take advantage of the downward correction, traders said Friday (Aug 5).

 

The most active December wheat and corn futures contract on the Chicago Board of Trade Friday fell 2.2% and 2.1% respectively to US$7.10 a bushel and US$6.87 a bushel. CBOT November soy fell 1.8% to US$13.21 a bushel.

 

Most traders expect a further correction of at least 10 cents a bushel in the near-term. Corn may stay below US$7.0/bushel for a few more days, opening up a buying opportunity for physical importers in Asia.

 

Fears of another recession and mounting debt levels in the EU are encouraging investors to buy back US dollars, analysts said, adding that a stronger dollar can impinge on US exports and this is dragging down grain prices.

 

The US is the world's largest exporter of agricultural commodities, selling millions of tonnes of grain to Asia.

 

"Corn supplies are tight but investor sentiment is weak and today's decline in prices is mostly due to the broad based selling taking place in both equities and commodities," experts said.

 

Gokon said the downside potential in corn and soy is limited because of hot weather in the US but other factors are at play besides fundamentals.

 

A pattern in early July of building heat across the country is developing again in the US, Commodity Weather Group said in a report, adding that the strongest heat is in the mid-continent.

 

In soy, cancellations of physical deals by importers are also weighing on prices.

 

These are mainly from China, as buyers back out of their bookings due to huge in-country stocks.

 

Buyers are even passing on offers of US corn because they have the option to purchase cheaper grain from the Black Sea region, he said.

 

Demand for US wheat has also declined due to aggressive sales by Russia.

 

US carryover stocks of corn and soy may end up being greater than government projections, analysts said.