September 4, 2009

India's corn exports are expected to drop sharply or even grind to a halt as the country's worst monsoon in nearly four decades threatens to decimate output, prompting New Delhi to scrap an export subsidy.

 

Though India's absence from export markets is unlikely to ignite world prices -- it exports just 2 million to 3 million tonnes amid global trade of more than 80 million - the situation could trigger a scramble among Southeast Asian buyers, who depend on small cargoes for nearby shipments.

 

Atul Chaturvedi, head of the agricultural arm of Adani Enterprises Ltd, a leading Indian commodities trading firm sees no "excitement" on the exports front as farmers will keep certain quantities for sowing next year.

 

Analysts said while the corn crop in India, Asia's second largest producer, was suffering from moisture stress that might reduce output to around 17.5 million tonnes, from last year's 19.3 million, demand was expected to remain steady.

 

This will put upward pressure on domestic prices of corn as local feed millers rush to snap up their requirements before the market moves up further.

 

Veeresh Hiremath, a senior analyst with Karvy Comtrade, a research firm based in southern India said the country may not go for exports after all as domestic demand, especially from poultry feed manufacturers and the starch industry, will surge.

 

India's corn exports registered a more than four-fold increase in the year to September 2008 after the government's subsidy of 5 percent made offers from the South Asian country competitive. But the government's latest trade policy measure has withdrawn the incentive

 

India's domestic corn prices have already surpassed offers from the US on expectations of lower production and strong demand during the year beginning October.

 

Indian corn is now quoted US$215-US$220 a tonne, including cost and freight to Southeast Asia, compared with US corn, which is available for around US$215 a tonne. Thai and Pakistani corn are selling even cheaper at US$190-US$195 a tonne.

 

One trader with an international trading company in Singapore said India corn needs to be at least cheaper by US$10 to be "buyable" and the country will not be a significant supplier next year.

 

India's absence is unlikely to ring alarm bells on the Chicago Board of Trade, but will force buyers to turn to the United States or Latin America and provide some support to the Chicago market now hovering near nine-month lows.

 

Malaysia and Vietnam, India's top corn importers, are already snapping up cargoes from Thailand, Pakistan and Brazil in the absence of Indian supplies.

 

The Singapore trader said Malaysians are trying to take US shipments and they bought one panamax of Brazilian corn last week while Vietnam is taking Thai and Pakistani corn.

 

Corn, which is crushed and used along with soy meal to make animal feed, has dropped 23 percent on CBOT this year to its lowest since December as an economic slowdown erodes meat consumption and on prospects of the second largest corn output in history in the United States, the world top exporter.

 

The US Department of Agriculture has estimated India's corn consumption to jump by almost a quarter to 17.6 million tonnes in the year to September, from a year ago and it is likely to stay steady in 2009-10.

 

This would leave the country with little exportable surplus, with production expected to fall around 10 percent from an estimated output of 19.3 million tonnes in Asia's No. 1 corn exporter, contrary to earlier expectation of a bumper crop.

 

India's weather office has said deficiency in corn growing regions at the end of third week of August ranged between 20 and 37 percent.

 

Although the overall corn planted areas rose this year, the delay as well unequal spread of monsoon rains halved the corn area in southern state of Andhra Pradesh, the country's main producing state. The scanty rains in the northwest region also lowered 6 percent coverage in Rajasthan.

 

Andhra Pradesh and Rajasthan, India's top two corn-producing states, contribute 17 percent and 14 percent respectively of total output.

 

Besides monsoon woes, India's poultry feed industry is recovering this year from bird flu and will need more corn, a factor that has already boosted domestic prices.

 

Shashi Kapoor of Poultry Federation of India said there is huge demand for corn-based feed and that the government should ensure enough domestic availability before exports.

 

India's poultry and livestock feed industry is expected to grow at 8 to 10 percent in 2010 after being hit by lower sales because of bird flu. Growth in the last two years dropped to 5 percent from an average annual rate of around 12 percent.

 

And the poultry industry is already lobbying the government for an export quota.

 

Lower production and strong feed demand are likely to drag down India's corn exports next year, to just a quarter of an estimated 2 million tonnes in the year to September.

 

Chaturvedi sad 500,000 tonnes is at best as Indian values will be uncompetitive with the export incentive gone.