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COMMENTARY & ANALYSIS

May 25, 2018

New buyers, emerging sellers in a transformed world corn market

Southeast Asia, China and MENA break North Asian and European dominance of world corn buying. India's time is coming as Latin America, Ukraine transform corn market buying options.
 
By Eric J. Brooks

An eFeedLink Hot Topic
 
 
While world feed grain markets have been depressed, huge changes have been going on beneath the surface. From the 1950s through the late 2000s, the world corn market was dominated by American exports and a duopoly of European and Northeast Asian buyers. This however, is no longer the case.
 
Ten years ago, Japan and South Korea were the two leading corn importing nations. Together with the EU, they accounted for 41% of world corn imports, slightly higher than the 40% share they had at the turn of the century. Even a decade ago, the next five largest corn buyers collectively did not import as much corn as Japan and South Korea.
 
Just ten years later, Japan and South Korea are collectively importing over a million tonnes less corn than a decade ago. Together with the EU they only account for 28% of world corn purchases, and that proportion is gradually falling.
 
In the ten years since 2008, a decade of rapid corn import growth in Vietnam (900%) and China (286%) has coincided with rising import demand from Mexico (115%), Saudi Arabia (237%), Iran (150%) and Algeria (120%).
 
While combined Japanese and South Korean corn purchased this year is almost the same as it was in 2000, the last eighteen years have seen imports of corn by Vietnam (+35%/yr), China (+25%/yr) grow at near exponential rates. Most of this rapid import growth occurred after 2008.
 
While Japanese corn imports have stayed flat near 15 million tonnes, this year will see Mexico overtake it as the world's largest corn importer. From 6.0 million tonnes in 2000-01, Mexican corn imports jumped to 8.3 million tonnes by 2010-11 and a USDA estimated 16.2 million tonnes during our current 2017-18 marketing year. Further south in the Americas, Colombia also saw exceptionally strong corn import growth, from 1.9 million tonnes in 2000 to a USDA estimated 5.0 million tonnes in our current marketing year.
 
A similar story happened with two former Asian corn exporters. A world corn market supplier until the mid-2000s, Vietnam went from importing 0.6 million tonnes of corn in 2006-07 to 9.0 million tonnes in the current marketing year. By the end of the 2018-19 marketing year, Vietnam's projected 11 million tonnes of corn imports means that it will have overtaken South Korea as the world's second-largest buyer.
 
With a little assistance from Indonesia, Malaysia and Thailand, Vietnam spearheaded the transformation of ASEAN into a major corn importing destination. According to USDA statistics, Southeast Asian corn imports have quadrupled, from 4.3 million tonnes in 2000 to 5.2 million tonnes in 2008-09, 14.3 million tonnes in the current marketing year and a projected 17.1 million tonnes of corn imports in 2018-19.
 
Heavily populated but short of arable land, the Middle East North Africa region saw the collective corn imports of Egypt, Iran, Algeria and Saudi Arabia triple over 18 years, from 9.5 million tonnes in 2000 to 11 million tonnes ten years ago and a USDA estimated 28.7 million tonnes in 2018-19.
 
Ironically, China was expected to be the world's largest corn importer by this time but underperformed. Instead of buying up to 20 million tonnes of foreign corn as was expected by this time, China is expected to import only 5 million tonnes this year. Even so, the protectionist policies which kept China's domestic corn production artificially high are being gradually phased out.
 
After 2020, market liberalization will erode its large inventories and by 2025, China is expected to be importing somewhere between 10 and 15 million tonnes of corn. Within ten years, it is on course to overtake Vietnam, Japan and Mexico and become the world's corn buyer.
 
Interestingly, China's decision to become a net corn importer is itself tied to the world corn market's other transformation: The transition from US dominance of world corn supplies to one where a nation can purchase 10 or million tonnes of corn from a handful of exporters. Prior to 2010, America supplied anywhere from 50% to 70% of annual corn exports in any given year.
 
With ethanol production offering US corn farmers better corn growing returns than mere exporting, America grows more corn than ever but the quantity of US corn that reaches the world market is no higher today than it was thirty years ago. At the same time, ethanol production jacked up prices and corn growing returns high enough to encourage a massive expansion of corn cultivated area in Latin America and the Black Sea region.
 
As a result, US corn exports went from accounting for 67% of world supplies in 2005 to approximately 34% this year. America remains the world's top corn supplier but ten years ago, the next three largest exporters collectively sold 60% of the corn volume America did. Now they export 1.5 times more.
 
The net result of these changes is a world corn market that is unrecognizable to a trader from twenty years ago. Yesteryear's top exporters now rank among the world's largest corn buyers. The tripartite Japanese-South Korean-European dominance over world corn purchases has been replaced by an emerging array of Mexican, Middle Eastern, Chinese and Vietnam-dominated Southeast Asian buyers.
 
Instead of flowing from America's east and west coast to northern Pacific and north Atlantic ocean buyers, corn shipments now have a multiplicity of origins and flow in all directions. Southern hemisphere corn from Brazil and Argentina and northern hemisphere supplies from the Black Sea region finds its way to North African destinations along the Mediterranean Sea as much as it does to the Southeast Asian or Chinese ports.
 
Once sourcing exclusively from the United States, Japanese and Korean corn buyers now confidently buy a significant portion of their supplies from Ukraine or Latin America. While buyers everywhere from Malaysia to Japan continue to fret about how the more reddish color of some non-American corn may impact the appearance of meat, one fact is undeniable: Importers no longer need to wed themselves to the supplies of anyone corn exporting country.
 
Moreover, alongside all the new buyers and sellers, there is one other elephant on the world corn market's horizon: Decades of exceptionally rapid Indian protein demand growth show no sign of letting up. With Indian corn production having fallen behind consumption growth for the better part of two decades, the 2020s will probably see India join China, Vietnam and the MENA region as another mass corn import destination.
 
Thus, when the next corn market rally occurs and supplies become tight, veteran traders may find themselves dealing with an entirely different set of buyers, sellers and shipping logistics.
 
 
 


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