December 17, 2011

Asian corn prices may slide into year-end

Corn prices may fall further in the second half of December amid traders' cautious mood and waning China demand following the country's improved corn output this year.

"The Christmas holidays start next week and trade volumes are expected to be very thin, particularly as it is also the year-end," said Tokyo-based Okato Shoji deputy general manager Kaname Gokon.

Gokon added that the situation in China is also putting downside pressure on corn futures on the Chicago Board of Trade (CBOT). Data early this month from the National Bureau of Statistics in China showed that corn output is set to rise to 191.75 million tonnes this year - much higher than an earlier estimate of 184.5 million tonnes from both the USDA and the China National Grain & Oil Information Centre.

CBOT Corn for March delivery closed down 1 3/4 cents to US$5.79 a bushel Thursday (Dec 15). Coupled with broad-based macro-economic jitters, CBOT March corn could test US$5.70/bushel. If that level is breached, prices could fall further to US$5.40/bushel, said Gokon.

China still has scope to increase its grain production, which has risen for an eighth consecutive year this year to record levels, Minister of Agriculture Han Changfu said Thursday.

Depending on improved agricultural technologies, the unit yield of grain is likely to increase 1% annually by 2020, while acreage will stabilise, he said.

Still, China is expected to have a sustained and growing presence in the global corn trade over the next five years, after having only participated in the import market sporadically and for short periods in prior years, analysts said.

As China's middle class grows and becomes wealthier, meat consumption will continue to increase, driving demand for corn and soy as feed. China currently only allows corn imports from the US, Thailand and Peru, but it expects Argentina to join this list, with cargoes possible as soon as early 2012.