November 10, 2010

 

Japan's feed firms to fill in more than half of corn needs

Japan's compound-feed manufacturers have yet to cover around 60% of corn-import requirements for the January-March period, still expecting a downward correction in prices, trading executives said Tuesday (Nov 9).

 

While South Korea has been actively buying corn in the past few days as a hedge against price gains, buyers in Japan are cautious. They expect corn prices to fall after the USDA releases a monthly global demand and supply report later Tuesday (Nov 9).

 

Corn prices are hovering around a two-year high and the USDA estimates will determine whether further purchases will become cheaper or costlier for Japan and South Korea, the world's two largest importers.

 

Traders in Japan said only around 1.3 million tonnes of the 3.2 million tonnes of feed corn needs for the next quarter have been purchased; final pricing has been done for close to 800,000 tonnes.

 

Purchases are made by fixing a premium to corn futures on the CBOT. Final pricing is done later, by locking in the futures price of a particular day to which the premium is added.

 

"After the sharp cut in US corn production estimates last month, there isn't much scope for a further reduction. On the contrary, (output) figures may even be revised higher," said a Tokyo-based executive at a global trading company. He said this may drag down prices and propel another round of buying.

 

In October, the USDA revised the country's corn output estimates down sharply to 321.7 million tonnes from 334 million tonnes. Private forecasters expect further downward revision in the November report.

 

However, a Singapore-based trading executive said fears of US corn yields and estimates being revised lower again may turn out to be misplaced given that a substantial cut has already been made.

 

Buyers in Japan have made purchases around US$2.30 over the CBOT March corn futures contract. Premiums have been pegged around US$5.80/bushel, with final price around US$320/tonne, c&f.

 

At 0935 GMT, the CBOT March corn futures contract was trading US$0.675 higher at US$6.06/bushel. Importers in Japan expect the CBOT corn futures to fall toward US$5.50/bushel.

 

"It is a risk we have taken because prices are already too high," said a Japanese importer.