July 12, 2012
Japan buys corn at flat prices over CBOT-based corn pricing
Corn imports based on premiums over CBOT futures have been slashed by Japanese compound feed manufacturers, instead buy more at flat prices, trading executives said Wednesday (July 11).
Japanese importers traditionally buy more than 70% of their feed corn at a premium over CBOT futures contracts, with the final price fixed at a future date of their choice prior to shipment. However, the volume of such purchases has now declined to less than 50% of the total, the executives said.
With corn prices surging, many importers don't want to take the risk of buying on a premium basis because prices may rise further, one of the executives said on the side lines of World Sustainable Agriculture Congress.
Japan is world's top corn importer, buying 800,000 tonnes to 1.2 million tonnes of feed grade corn each month, and its purchases are closely tracked by global traders.
Due to a severe drought in US Midwest, corn prices on a delivered basis for fourth-quarter arrival in East Asia have risen by more than US$90/tonne since mid-May. The latest offers for US corn are around US$365/tonne, on a cost and freight basis, traders said.
Importers in Tokyo confirmed the decline in premium-based pricing. Purchases are increasingly being made at a fixed price in US dollars or Japanese yen per tonne.
In another significant shift, Japanese animal feed manufacturers are increasingly turning to South America and Ukraine for corn due to the sharp rise in US prices.
Japan is still seeking 500,000 tonnes of feed-grade corn for September shipment and is likely to source at least 20% of it from South America, traders in Singapore and Tokyo said.
Shipments from Ukraine will increase by November, when its next corn harvest will be available, executive at a Singapore-based global trading company said.
Brazilian corn for October-December shipment is around US$25-27 a tonne cheaper than US corn. Ukrainian corn for November-January shipment is US$30-32/tonne cheaper than corn from the US, where prices have surged due to the drought.
US corn for November shipment is offered on a cost and freight basis at a US$2.05/bushel premium over the CBOT December contract, compared with US$1.35 and US$1.10/bushel premium for the Brazilian and Ukrainian corn.
The US share of Japan's feed corn imports has traditionally topped 90%, but has declined to 80% in recent months and may fall further in the fourth quarter, industry estimates showed.
Ukrainian corn exports are likely to rise 12% to 14 million tonnes in the current marketing year that started July 1, due to a sharp rise in output, while Brazil's exports are expected to surge by 36% to 12 million tonnes, the International Grains Council has forecast.