April 20, 2012

 

Japan halts buying of European corn on quality issue

 

 

Due to deteriorating quality, most corn buyers in Japan have suspended purchases from Europe and they may resume purchases only after the next harvest in July-October, trading executives said Thursday (Apr 19).

 

Corn exports from Europe, particularly from Ukraine, were the single most important factor that dragged down prices from last June's record high when supply was relatively tight in the US, which is by far the world's top exporter.

 

"Though corn from Ukraine and other European countries is cheaper, the grain is softer and broken-kernel content is around 7% compared with 4% in US corn," said an importer in Tokyo.

 

Another trader said European corn shipments to Japan in the April-June quarter are unlikely to exceed 200,000 tonnes, much of which is spill over from January-March, when transportation was delayed due to an unusually severe winter.

 

Japan purchased a record 1.5 million tonnes of European corn, around half of its needs for January-March shipment, most of which was from Ukraine with prices up to US$25/tonne lower than the US origin.

 

The better grades were shipped out early from November onwards, soon after harvest and the quality is now fast deteriorating, said an Odessa-based exporter in Ukraine. Ukraine's corn output and exports in the current marketing year to June 30, 2012 is projected to almost double to 22.8 million and 10.5 million tonnes respectively, according to the latest estimate of the International Grains Council.

 

Traders in Tokyo said Japan is now buying most of its needs from the US though around 650,000 tonnes have also been purchased from South America for the April-June quarter.

 

Japan's corn purchases for the April-June quarter have been completed and total around 3.2 million tonnes but prices for around 1.6 million tonnes of May and June shipments has yet to be finalised, according to industry estimates.

 

Importers in Japan buy corn at a premium to futures on the Chicago Board of Trade and lock in the final cost and freight price at any date of their choosing. Pricing is already done for April shipments, but complete for only 40% and 10% of the cargoes for May and June, they said.

 

Importers expect CBOT futures to decline as plantings progress in the US, the world's top exporter, said an executive at a Tokyo-based grain importing company.

 

"Importers are hopeful that a record corn planting in the US may drag down (near-month CBOT) corn (futures) below US$6/bushel," he said.

 

Near-month May corn futures on CBOT, which rose 9% in just three days to end at US$6.5825 a bushel April 3--amid supply concerns--have since declined 6.6% and are now trading around US$6.15 a bushel on profit-taking and fund selling. Wednesday, they even fell below US$6.02/bushel before rebounding in electronic trade.

 

Japanese buyers have purchased corn around US$2.05/bushel premium over the May and July corn futures, traders said. Average futures price at which the premium was locked-in is around US$6.20-6.24/bushel. This works to around US$324-327/tonne, basis cost and freight.