October 1, 2011

 

Asian grain market to pick up on physical demand

 

 

Asian grain prices are seen to recover in the week ahead on the back of physical demand and technical buying as investors take advantage of the latest price slump.

 

Most traders and analysts expect wheat and corn prices on the Chicago Board of Trade to rise by 10-20 cents a bushel by early next week, which would the most active December contracts to US$6.70-$6.80/bushel and US$6.40-$6.50/bushel, respectively.

 

Market players are also eagerly awaiting a grain inventory report issued Friday (Sep 30) from the USDA.

 

There may still be some price downside for soy due to a better-than-expected harvest in the US, but it seems that wheat and corn are slated for a recovery, analysts said.

 

A wheat output bounce in the Black Sea region after last year's drought is higher than expectations, but the effect on prices could be neutralised by strong demand for the grain as a substitute for corn in animal feed, said Abdolreza Abbassian, secretary of the Intergovernmental Group for Grains at the UN' Food and Agriculture Organization.

 

The drought in the US and uncertainty over winter plantings may also support wheat prices, he said.

 

Ample supplies of lower grades of wheat are available from Australia and the Black Sea region, but supply of high-protein wheat is tight, said a Singapore-based executive with a global commodities trading company.

 

Another trader said output of hard spring wheat, which has protein content of up to 14.5%, is affected in the US, and prices may rally next month.

 

"We are in a situation where the price outlook for high-quality milling wheat is bullish, while offers of lower grades from Russia are declining," he said.

 

Russian wheat on a free-on-board basis is being offered around US$250/tonne, down US$40 from three weeks earlier.

 

US corn inventories as of September 1 will likely be estimated around 50% of the year-earlier level, experts said.

 

Although corn, sugar and cotton prices have corrected downward of late, they have been above current levels only 15%-20% of the time over the last five years, ANZ Banking Group said in a note, so any talk of a slump may be overstating the case.