November 26, 2008

Asia Grain Outlook on Wednesday: Corn prices may fall on weak demand


Corn prices are likely to fall in the days ahead as the demand outlook looks weak.


Export demand for corn is weak, as many buyers in Asia and elsewhere are using feed wheat as a substitute for corn in animal feed.


Record global wheat output has dramatically increased the availability of feed wheat this year.


Besides, in the U.S., slowing ethanol demand is also hitting corn hard, which is the key feedstock for this alternative energy source. Lower crude oil prices have dented the economic rationale for ethanol.


Meanwhile, India, a major Asian corn exporter, is also finding the going tough as the country's corn export price is 17%-18% higher than U.S. corn due to the Indian federal government buying corn at a higher than market price as part of its intervention program.


Amit Sachdev, a representative of the U.S. Grains Council in India, a farmers' lobby group, said India's corn exports in the marketing year which began Oct. 1 are likely to be just around 200,000-300,000 metric tonnes, down from 3 million tonnes in the previous marketing year.


"I don't know to which countries India will be able to sell corn," Sachdev said, adding the landed price of Indian corn in South Asian markets is about US$210-US$220/tonne.


In other commodities, Thai rice millers are finding it more lucrative to mill government-procured paddy for a fee, rather than buy paddy from farmers on their own.


Thailand's government is buying paddy from farmers at THB12,000/tonne, which is above the market price, as a result of which farmers are unwilling to sell paddy to private millers.


Vichai Sriprasert, president of Riceland International Co., a major Thai rice export firm, said that since the government is buying paddy to stock in its warehouses, no one in Thailand knows what actual demand there is for the new crop rice, which is now being harvested.


He added that the government has also sold around 1.7 million tonnes of old crop rice from its stock this month at less than market prices.


"The market isn't sure how prices should react to this mix of contradictory policies," said Sriprasert.


In deal news this week, Japan's Ministry of Agriculture won't hold its weekly wheat import tender this week. It didn't give any reasons for the cancelation.

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