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Japan grain: buying slow on strong CBOT, freight

TOKYO: Japanese purchases of corn and soybeans have been slow over the past week, with buy interests dampened by the Chicago Board of Trade (CBOT) rally and higher rates for grain vessels, traders said on Monday.

End-users have so far covered less than 10 percent of their corn needs for April-June shipment, which are estimated at about 4.05 million tonnes, they said. As for soybeans, users have been looking for March shipment but barely covered their requirements.

Recent surges in the CBOT futures, sparked by bullish U.S. Department of Agriculture (USDA) data on crop output and stocks, surprised Japanese buyers who had expected the nearby CBOT corn contract to stay below $2.10 for a while, traders said.

On Friday, CBOT's March corn ended at $2.19 a bushel after marking its highest price since September 30 of $2.21-3/4.

Last Wednesday the USDA released its final estimate for the 1999 crop, in which it cut U.S. corn production by 100 million bushels from its November forecast to 9.437 billion bushels. It also slashed its projection for corn stocks at the end of 1999/2000 by 280 million bushels to 1.714 billion bushels.

"At the moment the major issue for Japanese end-users is what to do with pricing of corn they had bought for January-March shipment, rather than making new import deals for April-June shipment," said a trader at a major Japanese trade house.

"So far they have stayed on the sidelines, waiting for the March contract to come back to around $2.15 in a correction to the latest rally," he said.

Japanese end-users of corn, such as feed compounders and starch makers, make import deals with Japanese trade houses for U.S. corn based on a cost and freight (C&F) premium over CBOT, and fix the price of their corn later by buying CBOT futures through the trade houses.

Traders said corn pricing by Japanese users came to a halt after CBOT began a bull run last Wednesday. As for January shipment they already finished around 80 percent of pricing, but for shipment in February and March they have barely fixed prices.

Last month Japanese feed compounders set domestic sales prices of feed for the January-March quarter, based on the price outlook for CBOT and dollar/yen exchange rates. Pricing of their corn for the first quarter shipment at higher levels than their assumption would weigh on the companies profits, traders said.

PREMIUMS BUOYED BY HIGH FREIGHT RATES

Japanese end-users were also disappointed by a lack of falls in C&F premiums for U.S. corn and soybeans, despite easier U.S. export prices on farmer selling stirred by the CBOT rally.

On Monday, U.S. corn premiums on a C&F basis for April-June shipment were offered at 90 cents a bushel over the CBOT's May contract, unchanged from a week earlier.

U.S. soybeans premiums on a C&F basis for March shipment were also flat at 109-110 cents a bushel over CBOT's March contract.

Traders attributed steady C&F premiums to the freight market, where ship owners continued to offer high rates due to hopes for for brisk business after the New Year holiday.

Traders said rates for Panamax-class vessels between the Gulf and Japan for prompt shipment were offered at $22.70-$22.80 a tonne, up from $21.50 a week earlier.

Gulf-Japan rates for Panamax-class vessels for shipment in the second quarter were offered at $24-$25 a tonne, up from $23-$24 a week ago, they said.

"Ship owners are bullish as freight rates rose sharply after the New Year holiday, led by demand for iron ore and coal. But we cannot expect the current high rates to be sustained for long because ship supplies are expected to increase over the next few months," said a trader at another Japanese trade house.

"End-users are delaying grain purchases due to expectations for freight rates to retreat towards March," he said.-Reuters