April 12, 2013

 

Indian corn exports face challenges from lower world prices

 

 

The strong growth of India's corn exports may be disrupted as a drop of more than 13% in global prices, since mid-March 2013, has rendered shipments from the country uncompetitive, prompting buyers to seek cheaper cargoes from South America.

 

A drop in shipments from Asia's top exporter would give South American suppliers the opportunity for a larger share of the Asian market, and support Argentinean prices, which have dropped after a selloff in the benchmark Chicago futures.

 

As global supplies rise, India could see sales fall as much as a quarter to between three million and 3.5 million tonnes in the year to September, from 4.0 million to 4.5 million tonnes shipped a year ago, traders and analysts estimated.

 

Brazil and Argentina, the world's second and third largest corn exporters, respectively, after the US, are forecast to produce bumper crops this year.

 

Buyers in Indonesia, Vietnam and Malaysia, the top destinations for corn, are staying away from signing new contracts, hoping to negotiate better deals when shipments from Argentina peak in May and June, traders said.

 

Chicago Board of Trade corn dropped to its lowest in nine months last week after a US government report showed larger-than-expected supplies.

 

The USDA surprised the market in its quarterly stocks report on March 28, with reported higher old-crop supplies, easing a near-term supply crunch ahead of a potentially record crop to be planted in the next few weeks.

 

As a result, South American corn being offered in Asia has dropped to US$290 a tonne, including cost and freight (C&F), from US$325 a tonne quoted before the USDA report at the end of March.

 

Indian corn is quoted around US$280 a tonne in Southeast Asia for June shipment.

 

"Corn had a huge cost advantage to South America in March, when the spread between the two origins was US$40 a tonne but that has now narrowed to just US$10," said one Singapore-based trader who sells feed grain in Southeast Asia.

 

"Importers are typically attracted to Indian corn when it is US$15 to US$20 cheaper than Argentine corn."

 

Corn export deals have slowed this week, with traders reporting the sale of just one cargo of around 15,000 tonnes to Vietnam at US$280 a tonne, C&F, for May shipment.

 

Exporters have been aggressively selling corn this year, with 450,000 tonnes contracted for shipment to Indonesia in April, and in May, about 100,000 tonnes to Vietnam and 60,000 tonnes to Malaysia.

 

Indonesian feed millers paid between US$280 and US$295 a tonne, C&F, for new-crop Indian corn before the slide in global prices.

 

Although corn prices have eased slightly, strong demand from the domestic poultry industry and the government's minimum support prices underpins the market, traders said.

 

"Prices are already close to the minimum support level," said Prerana Desai, vice-president of research at Kotak Commodities. "We don't expect a big decline in corn prices as local corn consumption is rising because of higher demand from the poultry industry."

 

The farm ministry has estimated 2012/13 corn output at 21.06 million tonnes, down about 3% from 21.76 million tonnes the year earlier. Traders said a drop in the summer sown crop, due to a delayed monsoon, caused a decline in total output, but a good winter harvest made up for that slightly.