July 4, 2011

 

Asian corn buyers to strike deals on sell-off

 

 

Asian buyers will follow China's lead and snap up corn supplies after a sell-off in Chicago futures slashed 21% from record prices in three weeks, providing an opportunity for the world's top importers to stock up without fueling inflation.

 

Purchases of US and South American supplies by Japan and South Korea, the world's top two corn importers, and second-largest consumer China - which has already pocketed as much as 1.6 million tonnes of new-crop US corn this week - could put a floor under prices.

 

US corn suffered its biggest two days of losses since January 2009, after the US government surprised the market on Thursday (Jun 30) by significantly raising crop prospects and stock levels.

 

On Thursday, spot July corn fell by a record 10% after the USDA said farmers were able to seed far more corn acres this spring than many analysts expected and that supplies were not as tight as thought.

 

The 21% fall in corn futures since a record high of US$7.99-3/4 a bushel on June 10 will give Asian policymakers some relief from food inflation worries.

 

Wheat dropped 25% in June and soy lost 5%, making food more affordable in Asia at a time when agflation is a major concern.

 

Still, analysts said the party may not last long, given that the US harvest was not yet in the bin and uncertainties related to planting and crop development remained.

 

Some traders said the USDA was too optimistic as, for example, it has North Dakota plantings down by 1%, while state officials say 25% may go idle.

 

"Prices are going to bounce back as this is a knee-jerk reaction," said an analyst. "No one wants to be caught long when there is bearish pressure, but when you put your numbers together, you see an opportunity to go back in."

 

In its quarterly report on Thursday, the USDA said the corn stockpile was 3.67 billion bushels on June 1, and it pegged plantings at 92.28 million acres.

 

With normal weather and yields, a record-large crop could be reaped during the harvest, which is two months away.

 

Feedmillers in Japan, the world's biggest corn buyer, are expected to lock-in supplies, buying cargoes for August and September shipment after a slowdown in imports since the March earthquake.

 

Japanese buyers have yet to cover 20% of their requirement for August, while positions are open for more than half of September imports, Tokyo grains traders said. Typically by early July, Japan is done with its third-quarter purchases.

 

"In general, I think buyers will be back in the market," said Nobuyuki Chino, president of Tokyo-based grains trading firm Continental Rice Corporation.

 

"Compound feed sales have been very slow this year because of the earthquake and slowdown in demand."

 

US corn prices in Tokyo slid to around US$350 a tonne, including cost and freight, on Friday (Jul 1), down from US$405 a tonne traded in June, when the market climbed to historic highs.

 

Japan annually imports some 16 million tonnes or around 17% of corn traded across the world, while South Korea shared the 2nd slot with Mexico in 2010-11, taking eight million tonnes, according to the USDA data.

 

South Korean feed makers have been snapping up cargoes in the last two weeks, buying 220,000 tonnes, in addition to large volumes of feed wheat.

 

Some traders in Tokyo and Seoul said they were yet to see buying activity pick up as some importers might want to see the bottom before booking cargoes.

 

Indonesia expects to import more than three million tonnes of corn this year, as domestic output falls and global prices head lower, the chairman of the Indonesian Feed Mill Association said.

 

Sinograin, which manages state reserves, bought 1-1.6 million tonnes of corn on Wednesday (Jun 29), a day before the Chicago sell-off, and analysts believe lower prices should prompt the country's state-run grain agencies to further boost government's reserves through imports.

 

The cost of tax-free corn imports is about RMB2,200 (US$340) per tonne, which could prompt Sinograin, which buys grains on behalf of the government, to make purchases.

 

Imports would, however, not be viable for private feed millers as they need to pay a tax. The landed cost of US corn in China, including taxes, works out to around RMB2,530  (US$391) per tonne, while domestic prices are at around RMB2,320 (US$359) a tonne.

 

"We agree with US Grains Council that China will import 3-5 million tonnes of corn in 2010-11," said Li Qiang, president of Shanghai JC Intelligence, an influential private consulting firm.

 

A senior industry analyst said Beijing has put aside budget to buy between 9-10 million tonnes overseas to refill state reserves, which had fallen to the lowest in years after sales over past two years.

 

"China should take this opportunity to buy corn as the possibility of drought and early frost in China's major corn area later this year may push up the prices," said Xiao Jun, an analyst with Shanghai JCI, a commodities consultancy firm.

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