September 17, 2008

 

Asia Grain Outlook on Wednesday: Financial market worries may pressure grains
    

 

The financial turmoil in the U.S. is likely to pressure corn and soybean futures over the next few weeks, though losses are likely to be trimmed by solid fundamentals.

 

The wheat market, on the other hand, has been falling for the past three weeks, as global supply is swelling with good U.S. and European harvests, with a solid Australian crop close by. So, at most, outside market influences could hasten the fall of wheat futures on the Chicago Board of Trade.

 

"I don't see corn or soybean futures going into a free-fall because of the financial turmoil," said Nicholas Chung, commodities manager with Korea Development Bank.

 

He added that concerns about the yield of the U.S. corn and soybean crop continue to linger and until harvesting concludes, that will support both these commodities.

 

Apart from the U.S., a drought-like situation prevails in Argentina, and how that will affect soybean plantings there is not yet known.

 

"Demand for grains also remains quite good," added Chung.

 

However, analysts agree that soybeans are more vulnerable to the financial turmoil than corn, simply because while U.S. soybean output is expected to rise on year in 2008 on higher acreage, corn output is certain to be lower than last year's record U.S. crop.

 

Chung pegs support for the November soybean contract on CBOT at US$10, while at 0616 GMT, it was trading at US$11.24 a bushel.

 

Genichiro Higaki, an analyst with Tokyo-based Sumitomo Corp., added that the latest report from the U.S. Commodity Futures Trading Commission shows a decline in long positions in soybean futures. He expects short positions to dominate soybean contracts in the short term.

 

"In the short term, for all grains, there could be a fund pullout. But in the mid to long term, the question is where will the money go?" said Higaki.

 

However, Chung felt that even in the short term, the bearish pressure from the financial turmoil will be much more pronounced on commodities such as precious metals, base metals and crude oil, which are more closely linked to industrial activity and financial markets than grains.