Source: Traderrog

Grain Could Rise +50% In 2011 On Drought, Shortages, Demand, And Weather.

“Soybeans, Palm Oil to Extend Rally on Chinese Purchases, Investment Demand.”

“Global prices of soybeans and palm oil are likely to extend their rally on demand from China, the biggest user, and as investors buy commodities to protect their wealth, said analysts and executives at a Guangzhou conference.” (Editor: We think the whole price sector of all grains and related oils will see price explosions. China will not be denied on either cash or credit).

“The price of July-delivery soybeans may climb to $16 a bushel from $13 should drought occur in the U.S. next summer, said Anne Frick, analyst at Prudential Bache Commodities LLC in New York. Palm oil may extend its rally into 2011, said Godrej International Ltd. Director Dorab Mistry in prepared remarks. He also predicted at the weekend that the price may gain to 3,300 Ringgit ($1,067) per ton, a level reached today.”

“Higher prices may spur costlier food, fanning inflation. World food costs climbed to the highest level in more than two years in October on more expensive meat, cereals, cooking oils and sugar, the United Nations’ Food and Agriculture Organization said. Farm commodity prices, measured by the Standard & Poor’s GSCI Agriculture Index of eight futures, climbed +37% this year as China and India grew three times faster than the U.S.”

“The growth in consumption is in China,” and, by some forecasts, is so rapid that it may test the world’s limited resources, Frick told industry officials. Should the appetite for commodities from cash-rich investors become “wild and crazy” as some executives predicted, the market “could get out of control,” she said.”

‘Soybeans for January delivery were little changed today at $12.8575 a bushel, below the $12.90 a bushel reached on November 5, the highest level for the most active contract in more than two years. Palm oil for January delivery jumped +4.4% to 3,330 Ringgit in Malaysia. The pace of China’s soybean purchases for delivery this marketing year has exceeded expectations, according to Cofco Ltd.”

“More and more companies are buying further into future months” and purchases are larger, said Chang Muping, vice general manager of the oilseed division at Beijing-based Cofco. While Chinese crushers used to buy a few months before shipping, they now buy half a year or more ahead, he said.”

“Soybean costs climbed even as global output increased to a record, signaling prices are more influenced by economic changes such as increased money supply, said Frank Zhou, general manager of protein and vegetable oil trading at Cargill Investments (China) Ltd.”

“The rates of price increases “have surprised me even as I’m bullish,” Zhou said. China’s domestic edible oil market has seen excessive price gains even with large inventories, which are an “overbought” indication, Zhou said.”

“The market will find ways to regain the balance, said Frick. China’s pace of U.S. soybean buying slowed last week, improved weather in South America will speed planting, and a predicted increase in palm oil output may alleviate tightness, she said.”

“The flipside of the question is whether China’s demand in fact supports global prices at these levels,” said Larry Li, trading director at Noble Grain China. “Purely based on fundamentals, these high levels are certainly not supported.” “What worries me is everyone in the room is bullish,” Frick said. “Who’s going to sell?”  -William Bi, &  Claire Leow

We are not ready to forecast 2011 grain and oil prices just yet. However, on a modest forecast we could see preliminarily, corn at $7-$8, soybeans at $16 and wheat at $12.00. Palm oil and soybean oil could be 150% higher in 2011 than the highest highs recorded for 2010.