September 12, 2011

 

China, India demand to spur record corn prices

 

 

China and India's corn demand will lead prices to record levels above US$8 a bushel before the year-end, according to a US analyst on Thursday (Sep 8).

 

According to Reuters, strong demand from developing Asian countries like China, coupled with top producer the US, are both bullish for corn prices, said president of John C. Baize and Associates.

 

"Certainly China is going to bring in some corn," said Baize.

 

Baize forecasts Chinese corn imports to be between four and five million tonnes in 2011/12, in line with other analysts.

 

China and India are going to see growth as their poultry industry expands and they get more organised in the dairy sector.

 

Concerns about tight stocks of corn in the US, the world's biggest supplier, has pushed CBOT corn futures to historic highs.

 

Front-month corn futures hit an all-time peak in June just below US$8 a bushel. The benchmark December contract was at US$7.38 for 1/2 a bushel.

 

"We are going to get over US$8 a bushel relatively early this fall on November/December," said Baize.

 

"Farmers are going to get out of this harvest this year, with a pretty bad taste in their mouth about corn production, simply because they got hurt by the summer drought."

 

Almost all of China's corn imports came from the US.

 

The USDA predicts demand for corn by the livestock, ethanol and export sectors would leave the smallest US stockpile in 16 years by next summer.

 

US stock numbers will get down to around 600 million bushels and production in Argentina and Brazil will increase.

 

Baize is bullish on the soy outlook, which he sees benefiting from the hot weather conditions in the US.

 

"You are going to get very high prices - US$16/17. Our crop here, I do not think it is as bad as some are speculating. The yield is going to be closer to over three billion bushels of production" said Baize.

 

November soy was up 0.5% to $14.25 a bushel.

 

Traders said investors were evening up positions ahead of the USDA's monthly crop report, which should reflect the effect of dry August weather on US corn and soy production potential.

 

Baize also spoke to a farmer this week who expected his corn yields to be down 25% compared to a year ago, but his soy yields to be near record levels.

 

Indonesia, home to around 230 million people, imports 70% of its annual soy requirements, mostly from the US. Soy is mainly grown in the main island of Java and also in parts of Sumatra.

 

The country is struggling to increase soy production to stop its reliance on imported grains and aims to scrap imports by 2014, but domestic output has not increased significantly because of land constraints and low productivity.

 

"I keep hearing comments that they are going to expand production and become self-sufficient, which is simply not going to happen," said Baize. "The demand is continuing to rise, almost all for food."

 

Indonesia's annual soy consumption is seen growing by up to 6% to 2.4 million tonnes in 2011, with imports seen at as much as two million tonnes.

 

"The kind of soy they want in terms of colour and everything else, they are largely going to continue to buy from the US." Baize added.

 

Soy imports in the archipelago of 17,000 islands will grow by 5-8% over the next five years.

 

"The economy and population is growing pretty rapidly," he added. "People obviously want to eat better."