January 5, 2021

 

Platts: Momentum of demand for corn in Asia to sustain imports

 

 

The fundamentals behind the 2020 Asian corn price rally will continue to have momentum in 2021 as demand in key importing nations sustains trade flows, Platts reported.

 

Additionally, China's appetite for stockpiling and pork continues to have an indelible impact on global trade.

 

However, a return of diseases, like Asian swine fever (ASF), could break the stride in market prices.

 

Corn markets in 2020 faced unprecedented headwinds but the negative impact from the coronavirus pandemic was short-lived as Asian corn prices witnessed a sharp recovery and touched record-highs since S&P Global Platts started assessing the price on August 22, 2016.

 

Domestic demand in Japan, South Korea and Vietnam has been stable in the past year despite demand fallout resulting from the pandemic-related stoppage of economic activity in the food and beverage as well as tourism sectors.

 

South Korean consumers pivoted from eating out to eating in, and this maintained demand for food processing and, ultimately, the livestock sector. The country was ranked third in the world in 2019 for food order services, according to consultancy Euromonitor, with the trend expected to grow in 2021.

 

Besides demand for food services, the higher cost of alternative feed grains like dried distillers grains with solubles, a by-product of ethanol, is fueling demand for feed corn.

 

The replacement of DDGS with corn may be a feature in 2021. Global ethanol demand in 2021 is projected to increase 13.2% year on year to 1.89 million b/d but it is not expected to recover to pre-pandemic levels until 2022, according to S&P Global Platts Analytics December outlook.

 

The US Department of Agriculture reported in November that feed corn projections for September 1, 2020 to October 31, 2021, was raised to 9.7 million tonnes, 4.3% higher from the previous estimate by Foreign Agricultural Service Seoul, due to the increase in livestock inventories.

 

Vietnam's livestock sector is getting a boost with investments in feed production and swine farms.

 

Japfa Comfeed Vietnam recently announced its investment in two pig breeding farms opening in early 2021, a Vietnam-based source said. Total animal feed and aqua feed demand is expected to increase to about 31 million tonnes in 2021 from an estimated 28 million tonnes in 2020, Oscar Tjakra, Rabobank's senior grains and oilseed analyst for Southeast Asia said.

 

China's imports of corn and soybeans took centerstage in 2020 and are expected to bankroll corn prices in 2021. The country's appetite for pork not only saw meat imports rising to a historical high in 2020, but hog repopulation efforts are also doubling down to strengthen the demand.

 

As of October 31, 88% of hog production recovered to pre-ASF level, the latest survey and statistics report by China's Ministry of Agriculture and Rural Affairs showed.

 

Hog population was reported at 378 million heads, up 27% on the year, and sow population recovered for the thirteenth consecutive month and was seen 32% higher on the year, MARA said.

 

"Feed demand in China will continue to grow as swine inventories will be rebuilt over the next several months, and I expect they will continue to recover and may even be fully restored as early as the end of 2021," said Bryan Lohmar, US Grains China director.

 

China's appetite for pork saw thousands of pigs being flown to China in jumbo jets and the pace is expected to pick up in 2021.

 

"2021 looks to be a record year from Genesus as we have registered nucleus farms in UK and US to source pigs from," said Lyle Jones, sales director for Genesus Inc, China.

 

ASF remains a threat with infections reported in Europe and in Vietnam this year. The race for a vaccine is paramount to eradicating ASF spread and successful swine repopulation.

 

Many ASF vaccine trials are at different stages but analysts warned that it is too early to say when the vaccine will be available. As long as a vaccine is not found, measures to contain the spread will be limited to biosecurity.

 

Chinese corn imports are expected to eclipse demand from the other regions, which are also registering growth amid the pandemic. Market players are expecting China's total corn purchases in 2021 at over 22 million-30 million tonnes, but some are posting more aggressive numbers due to China's need to rebuild corn stocks.

 

Steady Asian demand in 2020, combined with supply-side fundamentals, have translated to higher corn import prices. Feed millers in South Korea have paid an average of $243.42/tonne CFR for cargoes arriving in H1 2021, a whopping $32.5/tonne, or 15%, rise compared with imports arriving in the same period this year at an average of $210.92/tonne CFR, according to Platts data.

 

La Nina patterns also threaten supply concerns at exporting nations. "We also expect CBOT corn price to trade at a higher price level in 2021 versus 2020," Tjakra said.

 

Feed millers in Asia will have to watch their bottom lines with higher feed prices while balancing supply amid the expected rise in consumer demand.

 

- Platts