January 31, 2012

Indian corn, soymeal to benefit from South American drought

 

 

The drought plaguing top grain producers Brazil and Argentina has turned out to be a blessing for Indian corn and soymeal exporters, who attract Asian buyers with their cheaper prices and speedier delivery.

 

Indian grain exports have recently been plagued by quality issues, with both China and Vietnam rejecting cargoes.

 

Despite these setbacks, analysts said the situation in South America will ensure India boosts sales within Asia, which consumes at least 40% of corn traded in the world and a quarter of global soymeal, especially if prices remain low.

 

Any exports from India are likely to relieve global corn and soy prices, which have climbed for two straight weeks, largely due to the South American drought.

 

"The South American crop is suffering whereas India has a clear advantage in terms of supplies and shorter voyage to destination markets in Asia," analyst said.

 

"We see higher exports of Indian soymeal and corn into Southeast Asia and other markets."

 

India accounts for just 8% of the global soymeal trade and annually sells some 2-3 million tonnes of corn, a fraction of the more than 90 million tonnes traded globally.

 

The corn crop in Argentina and Brazil, which together account for nearly 30% of global exports, was scorched by weeks of hot, dry weather which now threatens to shrink the soy crop in the world's biggest producing region.

 

The reduced supply comes as Russia is widely expected to curb exports of wheat, a move likely to boost demand for corn as wheat is used as a substitute in animal feed.

 

US corn jumped almost 5% last week, while soymeal gained 3.3% on the week, on concerns over supplies from South America.

 

Rains have fallen over some parts of Argentina and Brazil in the last few days but analysts and officials say it may be too little, too late, especially for the corn crop.

 

In its first estimate for the season, the Buenos Aries Grains Exchange last week forecast Argentina's soy production to fall 6% to 46.2 million tonnes in 2011/12. It also projected a corn harvest of up to 22 million tonnes, short of initial expectations for a record 26 million tonnes.

 

Brazil, which produced a record 75.3 million tonnes of soy last season, expects to harvest 71.5 million tonnes this year, according to the agriculture ministry.

 

The lower forecasts have boosted South American grain prices, and analysts said that is where Indian exporters have an advantage. A bumper harvest also means India will play a more important role for a longer time on the global market.

 

Traders forecast India's soymeal exports to jump to as high as five million tonnes compared to the four million tonnes shipped in 2011, while corn exports are likely to be around 3.5 million tonnes, up from 2.8 million tonnes last year.

 

Indian soymeal is quoted at around US$390 a tonne, including cost and freight, to Southeast Asia, a US$20 gain from a month ago. But it is still cheaper than South American cargoes being valued at around US$410 a tonne.

 

Indian corn, which largely finds its way to Indonesia, Vietnam and Malaysia, is quoted at around US$270 a tonne, around US$15-US$20 per tonne cheaper than South American cargoes.

 

"Indian corn and soymeal have to be at a discount to South America to attract buyers," said a Singapore-based trader who has direct feed grains sales to Asia.

 

Japan is India's biggest soymeal customer followed by Vietnam, and their imports are likely to grow as South American grain prices rise.

 

Vietnam, which annually takes close to 2.5 million tonnes of soymeal, is expected to seek some 300,000 tonnes for March and April shipment. Indonesia and Thailand are also expected to buy larger soymeal volumes from India in the months ahead.

 

Vietnam is also open for at least 50,000 tonnes of corn for March delivery and 75,000 tonnes of corn for April, and analysts some of this demand will be met by India.

 

The demand for Indian grain is clear, but the quality of the exports is often patchy. This has led Vietnam to reject several corn cargoes last year and prompted China to halt imports of oilmeals after they tested positive for a hazardous chemical.

 

Indian exporters have tried to address these issues, but with corn and soymeal in short supply, exports are unlikely to be hit by quality concerns.

 

"The Chinese ban is temporary and will halt shipments meant for immediate delivery. India's place as a major supplier of oilmeals will not be hit in medium to long run as supplies will continue to be competitive," analysts said.