November 27, 2010

 

Tight corn supply, India rains to support prices in Asia

 

 

A reduction in the International Grains Council's global output estimate, rain-induced delays in India's shipments to Southeast Asia, strong physical demand and expectations that China may require more imports are likely to support Asian corn prices next week.

 

Traders expect nearby-month corn futures on the Chicago Board of Trade to rise by 10-15 cents/bushel to more than US$5.50/bushel by early next week.

 

The IGC cut its estimate for 2010-11 world corn production for the second successive month Thursday (Nov 24), lowering it to 810 million tonnes from 814 million tonnes last month.

 

It also lowered its estimate for carryover stocks of corn in 2010-11 to 121 million tonnes from 125 million tonnes. The revised figure would be down 20% from a year earlier. The IGC estimates are based on an aggregate of the marketing years of all member countries.

 

IGC's downward revision in estimates for corn supply come close on the heels of United Nations' Food and Agriculture Organisation projecting substantially lower grains stocks this year in its latest report.

 

The drawdown in corn stocks is a cause of concern and is likely to keep prices high, said Abdolreza Abbassian, secretary of the FAO's Intergovernmental Group for Grains.

 

Nearby-month corn futures on the Chicago Board of Trade recently rose above US$6 a bushel for the first time in two years, before a downward correction.

 

The stocks-to-usage ratio for corn is now at a multi-year low because both US domestic demand and export demand are rising. The US is world's largest exporter of corn.

 

China resumed corn imports in April after a gap of around four years, and market expectations are that it may purchase at least a few hundred thousand tonnes more corn in coming months to tame inflation, which is at a 25-month high.

 

India's corn exports to Southeast Asian countries are delayed due to heavy rains in major growing areas, and some deals have been cancelled.

 

At least a third of the volume slated to be shipped from India in November has been put off, said a senior executive with a global trading company.

 

Buyers in Southeast Asia who require small parcels for quick delivery to meet immediate needs rely on Indian corn because imports of larger panamax cargoes from the US and South America are more expensive and are not as timely.

 

If more shipments from India are delayed, buyers will have to source additional volumes from South America or the US, said a Singapore-based executive at a commodities brokerage.

 

India has so far contracted exports of around 350,000 tonnes of corn for the November-January period, of which at least 100,000 was scheduled to be exported in November, but at least 35,000 tonnes was deferred or cancelled, traders said.

 

Since global prices moved off highs in the last two weeks, buyers in Japan and South Korea, the world's two largest corn importers, are looking for fresh purchases for April arrival, and this may push the market up again.

 

This week, the Korean Corn Processing Industry Association purchased a cargo of 48,000 tonnes of US No. 2 or better grade optional-origin corn at US$288.10/tonne on a cost-and-freight basis for April arrival.