November 8, 2012
Asian grain prices may rise in coming weeks
Despite indications that the US may revise its output estimates for corn and soy upward, Asian grain prices will likely move higher in the next few weeks due to tight supply.
Any upward revision in estimates for US soy output will be quickly absorbed by the market due to pent-up demand which would have otherwise put additional demand on South American supply, said Kaname Gokon, deputy general manager at Tokyo-based brokerage Okato Shoji.
There may be a near-term downward correction in prices if the USDA revises up its output and inventory estimates, but it will not last long because of strong fundamentals, said a Singapore-based executive with a global commodity trading company.
Last month, the USDA raised the country's soy output estimate for the marketing year that started September 1 by six million tonnes, and traders expect a further upward revision Friday (Nov 2).
Private analysis firms Informa Economics and INTL FCStone have already raised their estimates for the size of the latest US harvest.
Soy prices are trading higher due to strong demand from China even though there is likely more supply in the US than previously estimated, Gokon said.
The most-active January soy futures contract on CBOT is trading US$0.75 higher around US$15.1625 a bushel. According to traders, more than 75% of US annual soy sales have already been booked.
CBOT December corn is trading US$0.0225 higher around US$7.4325/bushel. Last month, the US lowered its forecast for the country's corn stocks as of end-August 2013 by nearly 16% to 15.73 million tonnes. But traders expect this number to be revised upward due to sluggish demand for US corn in recent months from both ethanol and animal feed manufacturers.
Nevertheless, traders expect limited supply of feed wheat to push up corn demand and prices in the next few weeks. Tightening wheat supply is already supporting corn prices. CBOT December wheat futures are trading US$0.0475 higher at US$8.8175/bushel.
ANZ Banking Group recommends buying the CBOT May corn futures contract and selling the December 2013 contract. CBOT May corn futures are trading around a US$1.025/bushel premium to December. ANZ puts the target premium for CBOT May corn to December at US$1.80/bushel.
The underlying tightness in grain markets is yet to be felt and will only become fully apparent in the first half of 2013, the group said. Earlier in the day, trading was sluggish because investors avoided risk ahead of the US presidential election results. But analysts and economists said the outcome would not result in any changes in the country's agricultural policy.
Due to budgetary constraints, the US government has already proposed cuts in direct and indirect payments to farmers in a farm bill that is under consideration, said Jay O' Neil, senior agricultural economist at Kansas State University.