September 22, 2011


Corn, soy prices to rise on increasing Asian demand



Although strong Asian demand will result in bullish corn and soy in the long term, present high prices have reached a peak as investors avoid economic uncertainty in developed nations, according to industry officials this week.


According to Reuters, participants at an industry meeting in Indonesia said that rising demand for feed in emerging economies, boosted by population and economic growth, will be the key driver for soy and corn for years to come, as consumption swings away from staple grains towards meat.


"As incomes rise, you will have a more diverse food basket coming from different parts of the world," said Margarita Escaler, a research fellow at the National Institute of Education in Singapore.


"You will have increased consumption per capita for wheat, rising popularity of convenience foods and beverages. You will also see a tendency for diets to become very similar across developed countries in Asia, towards more Westernisation."


The hottest summer in more than half a century in the US, has contributed to strong corn prices in recent months, prompting some traders to speculate that corn buyers will look beyond the top supplier.


Global soy production in 2011/12 is likely to reach about 265 million tonnes, newsletter Oil World forecasts, with the US 2011/12 soy crop likely to fall to 88.5 million tonnes from 90.6 million in 2010/11.


The forecast comes at a time of growing worries about the debt and economic woes of both Europe and the US.


"The debt problems in Europe and the US, as well as financial and economic uncertainties, support a more bearish scenario," Thomas Mielke of Oil World said on the near-term outlook for soy.


Industry players also weighed the chances of China, the world's second-largest consumer, looking to import US or Argentine corn.


Concerns about tight US corn stocks have pushed CBOT corn futures to record highs recently. Front-month corn futures <Cc1> hit an all-time peak in June just below US$8 a bushel.


"China is a wild card," said Adel Yusupov, Southeast Asia regional director at the US Grains Council, adding that demand from Southeast Asia was a crucial factor not to be ignored.


"All our eyes are on China, and we are forgetting a little bit about the importance of Southeast Asia. Overall, in terms of world corn imports, ASEAN presents much bigger potential than China."


Sustainability and food security concerns are also in focus, with increasing yields seen as key to meet demand from growing Asian populations, rising middle classes and continued urbanisation.


"As Asians live more and more in cities, the role of urban food security is going to be even more important as we saw in the 2007/2008 crisis whereby there were food riots," said Escaler, referring to global food protests in 2008 after the price of wheat and other farm commodities climbed steeply.


But the region needs to consolidate small farms to boost yields, ease food security problems and meet rising demand.


Farmers holding fewer than two hectares continue to dominate the sector in Asia, which makes up more than 87% of the world's 500 million small farmers, she added.


"If we have got 500 million small farmers, we have got to be able to make these farmers more entrepreneurial, and this is why the private sector plays a key role," Escaler said. "Food security cannot be addressed without the private sector."

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