November 18, 2010

 

Chinese feed demand to boost US grain futures

Growing feed demand, mainly from China, should lift US grain futures far above current prices within three to five months but the increase may be choppy due to outside factors, US analyst AgResource said Wednesday (Nov 17).

 

"In a general sense the landscape going forward looks really quite bullish," said President Dan.

 

Basse pointed to high demand for soy and potentially for corn from China, as well as tightening stocks in the US and the EU, which meant that any weather problem threatening crops somewhere could send prices rocketing.

 

"With where EU and US grain stocks are going to be there is really no room for error in terms of dislocation of supply due to bad weather and bullish trends should persist," he said.

 

Basse forecast benchmark corn prices <Cc1> on the CBOT could rise to between US$6.50-$7 a bushel by February-April, up from US$5.1 a bushel by 0645 GMT, and soy <Sc1> to between US$14.5-$15.5 a bushel, up from US$11.9.

 

Wheat futures <Wc1> would reach US$8.50-$9 a bushel over the same period, which would mean a gain of more than 35% from current levels.

 

The surge in wheat futures would be linked to the expected rise on the corn market, poor weather conditions in the US and expectations that the Russians may remain out of the world export market until 2012. All grain markets would continue to be subject to price volatility in the months ahead because of tensions between tight fundamentals and bearish macroeconomics, Basse said.

 

US corn, soy and wheat futures tumbled on Tuesday (Nov 16) as a surge in the dollar extended losses sparked by fears that a crackdown by China on rising food inflation could weaken the country's demand for commodities.

 

Corn and soy, which had sunk by their daily trading limits before rebounding slightly at the close, continued to fall in Asian trade on similar reasons.

 

The sell-off came one day after rumours of China importing millions of tonnes of corn from Argentina fired up CBOT grain futures.

 

"If we did sell the Chinese six to eight million tonnes of Argentine corn, that's going to mean that someone in North Africa or the Mediterranean is going to go without and they are going to be forced into the US market," Basse said.

 

Stressing that China could also buy US corn, Basse said he expected China would import a total of between eight million and 12 million tonnes of corn this season. "And once China starts its corn import programme it's probably something that's going to be maintained on an annual basis," he added.

 

Basse estimated the Chinese soy imports at a record 60 million tonnes this season, of which 27 million tonnes from the US, a pace that could rise to 65-67 million tonnes a year in 2012/2013. "That demand will have large dribbles in the world grain markets. So China is the big driver of this," he said.