August 24, 2010


Corn demand up in Asia on Black Sea wheat defaults



Asian corn prices are likely to strengthen this week due to strong demand in the physical market related to tight supplies of feed wheat.


Global trading companies supplying feed wheat to Asian countries have suggested that buyers swap at least some of their purchase agreements for corn contracts due to defaults by wheat exporters in the Black Sea area, said trading executives.


While buyers are reluctant to do so, analysts said that as feed wheat availability continues to shrink, it is corn which will have to fill the gap between supply and demand in countries including South Korea, the Philippines, Vietnam, Japan and Malaysia.


Due to a ban on exports of wheat by Russia, export demand for US corn has gone up, said Amit Sachdev, India representative of the US Grains Council.


Suppliers are trying to obtain replacement cargoes from Central Europe as availability of feed wheat from Black Sea countries such as Russia and the Ukraine shrinks. However, with contracts for the supply of around one million tonnes of feed wheat into Asia due to be executed over the next few months, some of them may have to be swapped for corn.


September corn futures on the Chicago Board of Trade ended seven cents higher Friday (Aug 20) at US$4.21 1/4 per bushel, and December corn closed up seven cents at US$4.36 1/4.


December corn futures could rise even to US$4.50/bushel in the next couple of weeks, as the US crop is expected to be smaller than earlier expected, said Koname Gokon, the deputy general manager at commodity brokerage Okato Shoji Co.'s research division.


The outlook for corn is bullish as spread activity - involving the purchase of corn and sales of wheat and soybeans - has increased, he said.


No. 2 yellow corn was being offered in the US Gulf around US$207 a tonne, free-on-board for November/December delivery, and No. 3 corn was at US$226-US$229 a tonne in the Pacific Northwest, Sachdev said.


Freight rates have also gone up in the last few days with the US-Gulf benchmark at US$65/tonne and Pacific Northwest-Japan at US$36/tonne, he said.


Demand from South Korea and Japan, two of the world's largest corn importers, is expected to rise due to the dearth of feed wheat.


Even though the US corn harvest that starts in September may be higher than last year, a large part of it may go to meet additional demand related to the feed wheat shortage, a Singapore-based executive at a commodities brokerage said.


South Korea has purchased more than 700,000 tonnes of optional-origin feed wheat for July-October shipment, and is now vulnerable to erratic deliveries as most supplies were due to come from the Black Sea area.