November 6, 2006

 

Asia Corn Outlook: Premiums may rise on US gains

 

 

Premiums of corn and wheat may continue to rise in the week ahead, as U.S. corn and wheat futures look likely to post further gains.

 

Analysts said U.S. monthly crop reports for corn and wheat likely to be released later this week are expected to cut U.S. corn output estimates and also project lower ending stocks for U.S. and world wheat.

 

In South Korea, corn buying was quiet last week, with only Nonghyup Feed Inc buying 110,000 metric tonnes of optional-origin corn in a tender.

 

The manager of a feed buying group in South Korea said traders were finding premiums for feed corn more attractive now than a few weeks ago, and this may lead to some buying this week.

 

"We are collecting feed corn buying needs of our member companies right now, and a tender may be called once we finish doing that," he added.

 

At present, the premium for feed corn supplied to South Korea from the U.S. is 60 U.S. cents a bushel above the Chicago Board of Trade's January contract.

 

In the wheat market, Japan's Ministry of Agriculture rejected all bids in its weekly wheat tender last week to buy 60,000 tonnes from the U.S. and Australia.

 

It's extremely rare for the Japanese government to not pick up any wheat after calling a weekly tender. The government offered no reasons for rejecting the bids.

 

However, a fair bit of buying came in from other countries.

 

Two South Korean flour mills - Dongah and CJ Corp. - jointly bought 21,500 tonnes of U.S. No. 1 wheat from trading house Cargill in a tender last week.

 

The Taiwan Flour Millers' Association, or TFMA, bought 46,950 tonnes of U.S. No. 1 wheat from trading house Mitsui, also in a tender last week.

 

Meanwhile, last week, Australia's Bureau of Meteorology reported that there is no guarantee rainfall patterns will return to normal early next year, raising the specter of drought continuing well into 2007.

 

"Computer models are nearly unanimous in predicting El Nino conditions for the rest of 2006 and early 2007," the bureau said in a regular review of El Nino indicators.

 

With a harvest of winter grains gathering pace in northern growing areas, the wheat industry expects a drought associated with the El Nino to slash production to around 9.5 million tonnes, down more than three-fifths from actual output last crop year, sharply reducing export availability.

 

Meanwhile, India's federal government seems determined to avoid wheat imports in 2007 after importing nearly 5 million tonnes of wheat so far this year.

 

"Last year, we stumbled in the management of stocks of food grains, and the result was that we were forced to import wheat. This year, we will be able to manage the supply side," federal Finance Minister P Chidambaram said last week.

 

For providing an incentive to farmers to grow more wheat, the federal government last week hiked the intervention price for wheat by 15% to INR7,500/tonne.

 

The intervention price is the price at which the federal government buys grains from farmers.

 

Sowing for wheat in India began earlier last month and has covered 188,200 hectares from Oct. 1-27, according to latest government data. Comparative data for last year was not provided by the government.