October 22, 2008


Asia Grain Outlook on Wednesday: Prices may slide on global economic woes



Grains prices in Asia may keep sliding in the near term, as the ongoing global financial turmoil and the resultant economic slowdown is likely to prompt traders to liquidate long positions of Chicago Board of Trade grains futures.


The outlook for grain prices is quite bleak right now with a stronger dollar and falling crude oil prices amid the global slowdown, traders said. Yield reports predicting a robust output of U.S. corn and soybean crops may be another factor weighing on prices, they said.


"For corn and soybean, both fundamentals and outside market influence looks bearish in the near term," said Kenji Kobayashi, an analyst with Tokyo-based Kanetsu Asset Management.


Kobayashi said cheaper corn and soybean prices, at US$4/bushel and US$9/bushel, respectively, and tumbling freight rates could spark buying from Asian importers wanting to meet local demand. According to the Agence France Presse, the Baltic Dry Index, which hit 11,793 in May, is now under 1,300, approaching rates not seen since the Asian financial crisis in 1997-1998, and is tipped to slip below 1,000 as commodity prices fall.


"We must also consider that ocean freight costs are tumbling, which further lowers the cost of importers," he added.


The BDI measures freight costs for carrying dry bulk goods such as coal, iron ore and grains.


Still, lower prices may not encourage traders in the region to purchase large volumes as most aren't willing to lock-in contracts betting on a further fall.


A trader in Seoul said South Korean corn importers expect prices to fall further and are delaying their buying plans.


"Right now corn from the U.S. is available at US$220-US$230/tonne, but buyers are holding on for sub-US$200 levels," said the trader.


He added that South Korea has covered its corn needs for this year and even for January 2009, so buyers are now only looking at February or March shipments.

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