April 13, 2017
An unexpected and misunderstood world corn market
China never became a large importer, Mexico will soon become the world's largest corn buyer. Middle Eastern, Southeast Asian import growth is very strong –it's just that exports grew even more quickly. A great time to keep buying corn.
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The world corn market is not merely in a deflated state. It has defied all predictions and probably will continue to do so. For the world corn market is so much unpredictable as it is misunderstood.

For example, when looking at today's depressed market, many point a finger at China's disappointing import demand. In the late 2000s, analysts were predicting that China's feed production would be near 250 million tonnes and its corn imports in the 15 to 20 million tonne range. At first, this prediction appeared on its way to being fulfilled: From 2008 through 2012, China's corn import volume went from nearly zero to 5.2 million tonnes.

Then, after 2012, China's feed demand expanded at an anemic 1.3% rate one would come to expect from the mature North American market. Consequently, the USDA expects China to only import 3 million tonnes of corn this year –and even this figure may turn out to be too high.

Superficially, in a world market of approximately 155 million tonnes, China's 12 million tonne underperformance gives the illusion of accounting for world corn's depressed state –but that is not the case.

–Over this same time, corn import volumes of other developing countries, particularly those in the Middle East or North Africa (MENA), grew far more strongly than expected. Even after subtracting China's shrinking corn import volume, from 2011-12 through 2016-17 the collective amount of corn imported by MENA region (+11.35 million tonnes), Southeast Asia (+6.82 million tonnes), Latin America (+3.59 million tonnes) and northeast Asia (+50,000 tonnes net of China's falling imports) will have increased by approximately 22 million tonnes.

In fact, despite China's disappointing performance, based on USDA statistics from 2010-11 through 2016-17, world corn imports expanded 47.7%, from a USDA estimated 92.7 million tonnes to 137.7 million tonnes. Unfortunately, world corn exports jumped a far larger 69.1%, from 91.3 million tonnes in 2010-11 to a USDA estimated 154.4 million tonnes in 2016-17.

Not only did other countries take up the slack from faltering China but a new world corn market that no one ever predicted is emerging.  Instead of China becoming a monster importer, Mexico (with projected imports of 14.8 million tonnes) is set to overtake Japan as the leading buyer within a year or two.

Behind Japan, South Korea (9.8 million tonnes) will not stay the number two corn importer for long. Feed demand in Egypt (9.0 million tonnes), Iran (8.5 million tonnes) and Vietnam (8.0 million tonnes) is growing far faster. Within a few years, these countries will overtake South Korea and alongside, Mexico and Japan, become the new top world corn importers.

To give a perspective on how much the world corn market has defied expectations: ASEAN's 600 million people are importing 13.7 million tonnes of corn, which is almost as much as China's 1.35 million people were supposed to buy, but never did. With its corn import volume having risen 216% in the last ten years, Southeast Asia has taken over from China as the part of the world where demand for feed inputs is growing fastest.

Even so, the MENA region's 35.6 million tonne import volume greatly exceeds even Southeast Asian requirements. The point is very clear: Even a simple glance at our graph of leading world corn importers shows that volumes purchased much, much faster in the years after 2012 then during the inflationary corn market years that proceeded them. So why is the world corn market in such a depressed state?
Realistically speaking, the world market could not have asked for corn import demand to have risen faster than the average 6.7% average annual increase it has enjoyed since 2010. Unfortunately, while corn market hyperinflation is long gone, China and the top four corn exporters responded by increasing their harvests by a 4.4% annual rate over this time.

Amid flat biofuel demand and feed corn use growing very slowly in all the major producing countries, post-2010 world exports jumped at a whopping 9.2% annual rate. That easily overwhelmed how much feed grain leading producers could absorb.

Consequently, world inventories jumped 74% in five years, from 128.1 million tonnes in 2011-12 to 223 million tonnes in 2016-17. This greatly exceeds the approximate 15% increase in world feed demand over this same time.

From the 14% to 15% range seen during the 2010-12 market rally, the world corn stocks-to-use ratio zoomed up into the 21% to 22% range. That is much higher than the 18% level that snuffed out the previous market rally. Moreover, with America (+17.3%), Argentina (+19.8%), Ukraine (+12.7%) and Brazil (129%) all increasing their collective corn export volume far by approximately 33%, there is no way inventories can climb down from bloated levels they are currently touching.

In conclusion, with supply growing far faster than demand, corn importers, particularly those from cash strapped developing countries, are taking full advantage of today's depressed prices. While news about growing season weather may create minor buying or selling opportunities, it would take at least two to three years of below-trend harvests to move supply in balance with demand. Low prices and low volatility should be the rule for some time to come.

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