March 15, 2011

 

Asian grain prices may fall on Japan earthquake

 

 

Asia's grain prices may ease this week on concerns that the earthquake and tsunami in Japan will slow down its imports as feedmills have been shut down and cargoes to be shipped in one month run over to the next.

 

Imported grain deliveries to northern ports, such as Sendai, Hachinohe, Kamaishi and Kashima will be delayed, traders said. Even ports and grain feedmills which aren't damaged are facing power outages and breakdown of transportation network with inland consumers.

 

Japan is the world's largest importer of corn and one of the major importers of wheat. It imports around 1.35 million tonnes of food and feed grade corn and more than 350,000 tonnes of wheat each month.

 

It isn't about delay in shipments alone – overall demand is also getting hit, said a grain importer in Tokyo.

 

Traders said Japan's monthly imports of feed corn may fall by up to 8%, as Friday's massive earthquake hit operations of several compound feed manufacturers in the country.

 

The area affected by the earthquake and subsequent tsunami produces one-sixth of Japan's annual compound feed output of around 24.3 million tonnes, they said.

 

If the mills operate at 50% of their capacity for the next six months, as many trading executives expect, Japan's compound feed production will fall by one million tonnes during the period, which would reduce feed corn imports by around 500,000 tonnes, a Japanese corn importer said.

 

Japan purchases around 6.2 million tonnes of feed-grade corn every six months.

 

Weaker Japanese corn demand may weigh on global prices, which are already under downward pressure due to the availability of large amounts of Australian feed wheat, as corn's discount to wheat on the CBOT narrows.

 

The discount has narrowed to a four-year low of less than US$0.55 a bushel from US$1.00 a week earlier and US$1.77 in mid-December.

 

The most active CBOT wheat and corn May futures contracts are currently around US$7.08/bushel and US$6.56/bushel and most traders put immediate support at US$7 and US$6.50/bushel.

 

Lower grades of wheat are already replacing expensive corn in Asian markets. Australian feed wheat on a delivered basis in Southeast Asia, for example, is US$40-$50 cheaper than US corn shipped from the Gulf coast.

 

The worst-ever outbreak of the FMD in South Korea over the past couple of months has also slowed down the purchases of world's third largest-corn importer.

 

"It is not very often now that we see grain import tenders in South Korea," said a grains trader in Singapore with a global trading company. In the past South Korean buyers issued wheat, corn and soymeal import tenders every few days.

 

In Japan, another concern is about congestion at ports, which will exacerbate delays.

 

It is possible that southern ports, such as Tokyo, Yokohama, Osaka and Hiroshima, will see more shipments, and distribution inland will be arranged from these locations, said Subhangshu Dutt, chairman, Institute of Chartered Shipbrokers.