July 10, 2012


Japan to purchase 4-5 million tonnes corn to meet demands



As a drought-driven rally in US futures prompted the world's biggest importer to slow purchases, Japanese feed millers have yet to buy 4-5 million tonnes of corn to cover fourth-quarter requirements.


US new-crop corn futures have jumped by a third since mid-June, leaving buyers on the wrong side of the market as extreme heat in the US grain belt curbs yields of what was once estimated to be a record-large crop.


"Japanese millers are short on corn as they have been waiting and watching prices go through the roof," said one Singapore-based trader with a Japanese trading firm.


"In a normal year they should have booked 30-40% of their supply for the last quarter, but as of now it is largely open."


Japan usually buys 16 million tonnes of corn a year, mainly from the US, where the crop is withering in one of the worst droughts to hit the Midwest in nearly 25 years. The USDA, in its July crop report to be issued on Wednesday (July 11), is expected to cut yield estimates from the current 166 bushels. A Reuters poll this week showed the yield to be 153.4 bushels per acre, down 2.5% from a similar poll a week ago.


Corn buyers in Japan are likely to be drawn into the market even if the rally in US futures continues until the end of July, another trader said. Forecasts indicate grains will face more unfavourable weather this week.


"They have to buy corn and most of it has to come from the US," he said. "We expect them to start buying as soon as some sort of stability returns to the market."


US new-crop corn jumped 3% on Monday (July 9) to a contract high, while front-month corn touched a high of US$7.16-3/4 a bushel, nearing a record high of US$7.99-3/4 set in June 2011.


In South Korea, the third largest corn importer, only a few millers need to buy cargoes for November and December shipment, while most buyers have made advance purchases. South Korea buys around eight million tonnes a year.


"If you look at the market, you'll know what kind of situation we are in," an official with the Korean Feed Association (KFA) said. "We are monitoring the market and will purchase when the time is right."


KFA members in Busan need to buy corn cargoes for December and onward, while Korea Corn Processing Industry Association (KOCOPIA) needs supplies for late November arrival, traders and industry officials said.


In one of the last deals signed by South Korean importers, KOCOPIA bought 55,000 tonnes of corn at US$260 per tonne in a tender on June 14, at least US$50 lower than the current price. Last week, KFA declined to buy the 55,000 tonnes of feed wheat it had tendered for due to high prices.

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