December 24, 2010

Japan may pay more for unpriced feed corn as prices increase

Japan has covered more than 80% of its feed corn requirements for the January-March quarter, but the final pricing for most of the cargoes to be shipped in February and March is yet to be done, trading executives said Thursday (Dec 23).

Nearby month corn futures on CBOT are currently at their highest level in 29 months, around US$6.09 a bushel. This implies that the upcoming pricing of Japanese corn imports will be at much higher levels.

Traders said purchases of around 600,000 tonnes of a total requirement of 3.2 million tonnes of feed corn for the January-March period are also yet to be made.

Japan is the world's largest corn importer, buying around 16 million tonnes of the grain annually, mostly from the US.

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

"Compound feed manufacturers are now very cautious in pricing their corn purchases due to high prices," said a Tokyo-based grain importer but any hopes for a downward correction may be belied due to strong fundamentals, including demand for corn to make ethanol in the US. Physical prices of feed corn have risen by 20%-25% since June.

He said final pricing for most of the cargoes for January shipment is complete, but has only been done for around 20% of the cargoes purchased for February and is yet to start for March.

Traders said most of the cargoes for January shipment have been priced at US$5.51-US$5.57 a bushel and after factoring in the freight of around US$2.05 a bushel, the actual cost of import will be close to US$300/ton.

For February shipment, cargoes have been priced so far at around US$5.77 a bushel and after including the freight, they may cost upwards of US$308/ton.

However, if the current rally in CBOT corn futures is sustained, cargoes may now have to be priced around US$320/ton, based on cost and freight.