August 13, 2011

 

Asia's corn prices expected to pick up

 

 

Corn prices in Asia may rise next week, after the USDA surprised the market with a 4% cut to its forecast of the US corn production, according to a Dow Jones report.

 

In its monthly report released Thursday (Jul 11), the USDA estimated the average US yield for corn at 153 bushels per acre, down 5.7 bushels from last month's projection. The department also lowered its inventory forecast for corn harvested this year to a 16-year low of 714 million bushels, down from last month's forecast of 870 million bushels.

 

The weaker outlook for corn output leaves supplies as a percentage of usage next year at just 5.4%, close to a record low.

 

Calling the cut a "big shock move," Macquarie Research said the implications for corn are "dramatic." The research house said corn will trade "significantly higher" in the short term, but the market will be capped due to cheap wheat from former Soviet Union countries and Australia.

 

This month's USDA crop report for corn and soy production is closely watched because it is the first for the upcoming crop based on field surveys rather than statistical trends. The surveys revealed damage from hot, dry weather in July.

 

Rabobank, which has a bullish outlook for corn, said the grain will be the agricultural complex leader, as the revised forecast will not be sufficient to meet increasing demand.

 

"We expect further tightening across the entire complex, supporting agricultural commodities despite the ongoing macro weakness," it said in a report Friday.

 

Rabobank added that corn futures on the Chicago Board of Trade could test their June 10 record high of US$7.87 a bushel, with adverse weather likely to keep prices elevated, despite increased plantings.

 

Kaname Gokon, the Tokyo-based deputy general manager at commodity brokerage Okato Shoji Co., said corn may test US$7.40/bushel next week.

 

On Thursday, CBOT corn futures rose by the one-day limit of 30 cents, with the most actively traded contract for December delivery settling 25 1/2 cents, or 3.7%, higher, to US$7.14 a bushel.

 

"As the US weather is forecast to remain hot and only 60% of the corn crop is in good/excellent condition, we believe the risk of further downward revisions to the final US corn crop is significant," Rabobank said. "This will require rationing not only of feed and export demand, as the USDA forecasts, but also of ethanol demand."