September 14, 2010

 

Grain prices in Asia to stay firm

 

 

Asia's grain prices are likely to be firm this week amid a shortage of feed wheat and a lower-than-expected corn crop in the US as traders and analysts gather in Vietnam for a four-day conference starting Tuesday (Sep 14).

 

Ahead of the conference, corn is being talked about as the next food crop with a bullish potential, following a recent surge in wheat prices.

 

Major regional and international suppliers of food and feed grains will be attending the US Agricultural Cooperators' Conference in Ho Chi Minh City this week.

 

Traders expect a fresh outlook on demand and supply and several deals for US corn, soymeal and even wheat to be negotiated on the sidelines of the conference. A bullish tone for the conference has already been set with the USDA slashing production estimates for global wheat and the US corn crop.

 

Corn prices are close to peaking but may hit US$5 a bushel soon, said Nobuyuki Chino, president of Tokyo-based Unipac Grain.

 

Corn prices are already at a 23-month high, and the December contract on the Chicago Board of Trade closed up 7 1/2 cents or 1.6% Friday (Sep 10) at US$4.78 1/4.

 

The USDA has cut its US corn production estimate for the marketing year to August 2011 by more than five million tonnes to 334 million tonnes because of lower than expected yields amid adverse weather. Projections for global closing stocks have been reduced by four million tonnes while US inventories may slip to their lowest level in seven years.

 

Corn could rise to US$5 a bushel, but it will be difficult for prices to stay above that level as harvest pressure in the US rises, said Genichiro Higaki, head of proprietary fund management at Sumitomo Corp. in Japan.

 

Corn prices are already too high, and many importers who have locked in their purchases for the next quarter are yet to do the pricing for these cargoes, said Chino.

 

In South Korea, many buyers have covered their requirements until November but are refraining from making further purchases due to the recent surge in prices.

 

Analysts said while supply continues to be ample, there are concerns of a possible further reduction in US corn yields next month, which could push up prices further.

Insufficient availability of feed wheat due to a slowdown in shipments from Ukraine and a ban on exports by Russia has pushed up demand for corn.

 

Most traders also expect wheat prices to stay above US$7 a bushel until the harvest in the Southern Hemisphere and winter plantings in the US and Europe.

 

The CBOT December wheat futures contract fell 1 1/4 cents or 0.2% Friday to US$7.36 3/4 a bushel.

 

The USDA has lowered its estimate for global wheat production in 2010-11 by almost three million tonnes but raised the forecast for inventories by nearly the same amount due to less demand for feed use.

 

Wheat prices have already risen sharply this quarter, but more importantly, downside is limited despite large stocks in the US, said an analyst in Singapore.

 

There is no reason to be bearish, and if Russia turns a net importer of grains, it may push up wheat prices towards US$8 a bushel, Chris Vanhonacker, a Geneva-based exporter and analyst said.

 

However, traders point out that the bulk of Russia's imports will be of feed grain such as barley, corn, sorghum and rye.