December 29, 2011

 

Asian grain prices could hike on South American drought

 

 

In the next two weeks, the grains prices in Asia are seen to notch up on firm demand as investors return from holidays and supply concerns due to dry weather in South America's major growing parts.

 

Prices have been hovering at their highest level in six weeks due to strong buying as investors take leads from a possible damage to crops in Brazil and Argentina.

 

There may be regular bouts of profit-taking but overall fundamentals are strong for the near term, said a Singapore-based executive with a global commodities trading company.

 

He said many traders are away for holidays but with the onset of the New Year, a mild rally is on the cards.

 

Most active wheat, corn and soy futures on the CBOT for March delivery are trading around US$6.48, US$6.35 and US$12 a bushel, respectively.

 

Traders and analysts expect prices to rise by another 10-20 cents a bushel in the next two weeks.

 

Brazil's soy output, which hit a record high of 75 million tonnes this year, is forecast to fall to 72 million tonnes in 2012, according to the International Grains Council.

 

However, traders said the production numbers may be revised much lower due to the lingering dry weather.

 

The lack of rain in the southwest Brazil is becoming a serious issue due to less moisture in the topsoil. According to meteorological reports, moisture in the subsoil is also decreasing, which can affect yields.

 

In Argentina, rains missed out corn and soy growing regions last week. The initial forecast of the country's soy production rising above 52 million tonnes next year from 49 million tonnes in 2011 is unlikely to be met.

 

Asian grain buyers in the cash market are keeping to the sidelines due to the recent rise in prices.

 

The Kaohsiung branch of Taiwan's Breakfast Soybean Procurement Association Wednesday (Dec 28) passed on a tender to import 60,000 tonnes of soy, citing high prices.

 

Cargill made the lowest offer, basis cost and freight, around US$2.069/bushel premium over the March contract on the CBOT.

 

The Taichung branch of the association purchased soy on December 21 from STX Corp. at US$2.0675/bushel premium over CBOT March contract.

 

In wheat, recent rains in Australia have damaged a substantial part of the crop, which implies consumers may have to shell out more for the good quality, high protein milling wheat.