November 14, 2008

Asia Grain Outlook on Friday: Prices may move in step with other markets


Grains prices are likely to move with crude futures and global financial markets over the next few days, irrespective of fundamentals.


Thursday, Chicago Board of Trade corn and wheat futures settled higher on outside market cues.


Fundamentally, for corn and wheat, the near-term outlook remains bearish.


Wheat, especially, is likely to remain bearish in the near term, with record crops being harvested around the world.


According to the lobby group U.S. Wheat Associates, the "best estimate" for U.S. wheat prices is likely to remain in a range of US$250-US$270 a metric tonne, free on board.


UBS Wealth Management Research expected CBOT wheat futures to remain bearish in the next one-three months, with prices in the US$4.50-US$6.80 a bushel range.


At 0534 GMT, CBOT December wheat was trading at US$5.43/bushel.


However, David Clough, a representative of the North Dakota Wheat Commission on a trip to Asian buying countries said, "We are really just one or two bad weather situations from seeing prices go back up again."


For corn too, the fall in crude prices is a bearish sign.


"The ethanol story will be partially on hold as crude prices fall below US$60/barrel," said Dominic Schnider, head of commodities research at UBS Wealth Management Research.


The benchmark December light, sweet crude oil futures contract at the New York Mercantile Exchange settled below US$60 a barrel Tuesday and hasn't breached the psychologically important level since.


Since the world's biggest corn producer, the U.S., uses a large portion of its corn output to make ethanol, depressed ethanol demand doesn't bode well for corn prices.


UBS is bearish on corn for the next one-three months, with a price range expectation of US$3.22-US$4.70/bushel.


At 0534 GMT, CBOT December corn was trading at US$3.83/bushel.


More bearish pressure for corn may emerge on news that the Chinese government is considering removing export restrictions on certain grains - corn is speculated to be among those grains.


In deals this week, Japan's Ministry of Agriculture bought 100,000 metric tonnes of U.S. wheat in a tender concluded Thursday.


The purchase assumes significance as the ministry had rejected bids to buy U.S. wheat for the three preceding weeks.