October 3, 2008

Asia Grain Outlook on Friday: Prices may fall; external pressure remains

Asian grain prices will likely come under further pressure in the week ahead as the market continues to focus on uncertainty in the wider global economy and near-term weak fundamentals, traders and analysts said Friday.

Rice prices fell sharply Thursday, with the Chicago Board of Trade November contract ending 49 U.S. cents lower, at US$17.84 1/2 per hundred weight.

A stronger dollar, weaker crude oil and concerns about the potential impact of a deep recession will likely continue to send ripples throughout the commodities complex, including grains, analysts said.

In Thailand, recent flooding has destroyed around 48,000 hectares of rice plantations, though officials said they are confident that the impact on actual production from the main crop - which begins harvesting in November - will be minimal, with volume lost accounting for only around 1% of an estimated 23 million-metric-tonne output of unmilled rice, The Bangkok Post reported Friday.

In the Philippines, corn production in 2009 could rise between 10% and 15% from this year's projected output of 7 million tonnes, if plans to export the grain are pushed through, said Roger Navarro, president of the Philippine Maize Federation, Inc. or Philmaize.

Domestic corn prices are expected to improve substantially if plans to export corn are realized, which in turn could encourage farmers to plant more of the crop and use higher-yielding farm technologies, Navarro said.

CBOT corn futures extended recent sharp declines Thursday, with the December contract ending down 30 cents, at US$4.54 per bushel.

"The outlook for CBOT grains is decidedly weak; as well as the bearish outside pressures, the market is still trying to absorb this week's weak U.S. Department of Agriculture data, which was particularly bearish for soybean and corn, as it indicated stocks were higher than previously thought," said Kazuhiko Saito, an analyst at Tokyo-based Interes Capital Management Co.

CBOT December corn will likely test US$4/bushel support early next week, while the November soybean contract, which ended Thursday 49 cents lower at US$10.04/bushel, will likely test US$9/bushel support, Saito said.

However, looking ahead, soybeans may yield solid economic value at current levels based on the demand structure, and once fund liquidation runs its course, the market will have set its seasonal bottom, said a U.S.-based grains analyst.

In Australia, wheat futures also continued to decline sharply, pressured by sharp falls on CBOT. At 0625 GMT, the most active contract - ASX January 2009 - was last traded at A$282 a metric tonne, down A$10 from Thursday's settlement, and at its lowest level since November 2007.