December 20, 2010

 

Asian grain prices likely to go downward

 

 

Asian grain prices may come under downward pressure next week on long liquidation ahead of the holiday season, prompting many physical buyers to keep to the sidelines.

 

The current offers for feed grade corn being made for May arrival in South Korea are around US$310/tonne, basis cost and freight but buyers are keen on levels close to US$285/tonne, said a Seoul-based trading executive.

 

Importers in Japan are also reluctant to make the final pricing of the corn cargoes purchased earlier at a premium to the futures prices on the CBOT. The buyers decide the day for which the CBOT price is to be locked-in to add the pre-determined premium.

 

Japan and South Korea are two of the world's largest importers of corn by volume and make most of their purchases from the US.

 

Most traders put the downside target for CBOT January soy futures contract for early next week at US$12.75/bushel, then US$12.60/bushel compared with current price of around US$12.84. Resistance is put at US$13.

 

For CBOT March corn futures, the downside projection is US$5.75/bushel against a current level of US$5.88 but prices may jump to US$6/bushel again if crude oil extends gains.

 

In wheat, they expect the CBOT March contract to ease toward US$7.25/bushel, then US$7.10/bushel from the current level of around US$7.47.

 

Many physical grains buyers in Asia expect at least a temporary downward correction in prices during the next few weeks.

 

However, some analysts caution that while there is an overall negative bias in the near-term in the grains complex, the recent gains in crude oil are supportive for corn prices.

 

Trends are bearish for wheat and soy but a rise in crude oil prices can push up demand for ethanol in the US, said Koname Gokon, deputy general manager at Japanese commodity brokerage Okato Shoji Co.'s research division.

 

He said the earning margins for Chinese soy crushers have come down in recent weeks amid government efforts there to keep a check on food prices.

 

Gokon said China's fresh soy purchases are likely to be slow next week though they may gather momentum in early 2011.

 

"Most of the bullish factors have already been factored in by the grains market and it is now looking for fresh leads," said a grains analyst in Tokyo.

 

He said the price rally in grains lost steam when USDA in its monthly demand and supply report on December 10 didn't make any cut in global and US inventories as was being anticipated by the market.

 

Traders in South Korea are weighing the options of importing Australian feed wheat but are still looking at quality specifications.

 

Large volume of Australian wheat being downgraded to feed category also implies that it will now compete with corn.

 

Traders said this may be negative for corn prices to some extent, though a higher crude oil is supportive.