September 16, 2010

 

Corn and soy demand to remain strong in Asia

 

 

Demand for corn and soy is likely to continue to be supported by Asia, with buying from the region to remain strong into the winter, when more of the two commodities are needed.

 

"Due to Russia's wheat export ban, some users are turning to buying feed corn instead," said Kaname Gokon, Tokyo-based deputy general manager at commodity brokerage Okato Shoji Co.'s research division.

 

Corn prices on the Chicago Board of Trade jumped for the fourth consecutive session Tuesday (Sep 14) as data on early yields from an ongoing US harvest disappointed farmers and stoked fears about a smaller-than-expected crop.

 

The USDA last Friday (Sep 10) cut its corn output estimate to 13.16 billion bushels with a yield of 162.5 bushels per acre from its August estimate of 13.365 billion bushels with an average yield of 164.7 bushels.

 

Gokon noted that buyers who used feed wheat are likely to have substituted some of it with feed corn, putting further strain on corn's supply situation. He tipped CBOT December corn to be steady this week, with some profit taking setting in after recent gains.

 

Meanwhile, Singapore-based brokerage Phillip Futures expects CBOT to extend last week's rally, it said in a research note. CBOT corn may advance to US$5 a bushel this week, it added.

 

On Tuesday, CBOT corn for September delivery reached US$4.81 1/2 a bushel before it expired up 8 3/4 cents or 1.9% at US$4.78. Corn for December delivery, the most-active contract, closed up 11 1/2 cents or 2.4% at US$4.95 a bushel.

 

"There could be further bullish factors for corn as farmers have not begun harvesting in the big corn-producing states of the central Midwest - such as top producers Iowa and Illinois; overheated demand for corn continues to keep prices on the boil even as producers continue to ramp up production," said the brokerage.

 

The rally in corn prices has spilled over to soy, with prices edging higher Tuesday.

 

While yields for soy are expected to be strong once the harvest picks up speed, with this not being supportive for prices, Okato Shoji's Gokon expects prices to remain rangebound this week. "Investors would likely unwind positions in corn to buy back soy," he said.

 

US soy prices are unlikely to fall below US$10/bushel this year despite the large upcoming harvest, a senior industry executive said.

 

"Demand in countries such as Mexico, Japan, China and Indonesia is strong and prices will mostly move between US$10-US$11/bushel for the rest of the year," said Randy Mann, vice-president of the American Soybean Association.

 

As for physical demand, China is likely to continue to aggressively purchase soy, adding to the upside, Gokon said.
 

US soy in particular could prove to be competitive compared with crop from rivals Argentina and Brazil as the dollar has declined recently, noted Phillip Futures.

 

Other than major importer China, importers of US soy products are also making strong inroads into Southeast Asia's soymeal and soy markets this year. US soy exports to Southeast Asia have risen 30% in the marketing year to August 2010 to 2.3 million tonnes and may rise further to 2.5 million tonnes this marketing year, a senior industry executive said.

 

US soymeal sales to Southeast Asia have also more than tripled in the marketing year to September to a record 2.4 million tonnes from 700,000 tonnes the previous year, accounting for about a third of the region's imports.

 

"Vietnam wasn't big on the radar before but has now become one of the largest buyers of US soymeal outside North America," said John Lindblom, Southeast Asia regional director for the American Soy Association.

 

Vietnam is the primary driver for US soymeal sales, he said. But because Vietnam will have a soy-crushing plant on line in the first half of 2011, a significant part of this demand may shift to soy in the coming year, he said.

 

But he said sales of soymeal to Vietnam in container shipments may remain strong.