October 10, 2008

Asia's corn importers on edge as markets fluctuate


Asian corn consumers opted to run down stocks this week rather than venture into volatile markets while the credit crisis made traders anxious in dealing with smaller players, adding up to little physical movement.


Regional traders said higher supplies from domestic crops in some countries and a reduction in feed demand were also reducing demand for corn.


The head of grain business with an international trading house in Singapore said these are very difficult times as demand constantly fluctuate. Even in South Korea and Japan, the developed economies, customers are running on much tighter stocks as nobody wants to take a large position in a bearish market.


Japan, which mostly buys 3-4 months forward, is not fully covered for this quarter's requirement of around 4 million tonnes. One corn trader based in Tokyo said there are still open positions for December, as everyone wants to go slow.


Indonesia is unlikely to buy much in the months ahead because of strong domestic supplies, while Malaysia has abundant stocks as it imported more than what it required in July and August.


Khaw Eng Sun of Malaysia's livestock farmers association said there are plenty of stocks when India announced a ban on corn exports, feed millers and farmers spread their bookings forward.


South Korea, which has recently become active in the market, bought more than 330,000 tonnes of corn at prices ranging from US $264 to US $278 per tonne cost and freight as Chicago corn futures fell below US $5 per bushel. The country had paid more than US $335 per tonne to buy US corn a month earlier.


Japan buys 16 million tonnes of corn a year while Malaysia imports around 3 million tonnes. Indonesia is expected to buy 400,000 tonnes this year, lower than its 650,000 tonnes of imports last year because of a good local crop.


The Philippines, which bought 130,000 tonnes of corn in 2007, has not purchased anything so far this year as disease-tainted animal flocks blunted demand. In fact, the country is looking at selling some cargoes to South Korea for the first time.


Even though small grain importers are beginning to feel the heat of the global credit crunch, which has squeezed liquidity out of the markets, large buyers were not yet affected.


Another Singapore dealer said in some markets like Bangladesh there is an issue, but there big buyers were able to fund transactions they have entered into.


For big markets there is uncertainty of demand rather than credit problems.


CBOT corn prices have lost more than 40 percent of their value since hitting a record high of US $7.65 per bushel in late June.


Dealers said sliding shipping costs for grains were also responsible for forcing buyers to hold back from purchases.


Bulk freight costs from New Orleans in the US to Japan have fallen to US $60-$70 a tonne from US$110 in July.


India, on its way to producing a large crop, is likely to enter the export business after a ban on sales lapses next week.


Traders said India was expected to produce some 18 million tonnes of corn this year, slightly lower than last year's 19.3 million tonnes and yet have a surplus for export.


India is a small but important supplier to Asian buyers looking for prompt shipments.


A 2.0-2.5 million-tonne surplus is expected. The ban will lapse unless the government extend it beyond Wednesday, 15 October 2008.


The US, the biggest corn exporter, is selling some 60 million tonnes in a global trade of 100 million tonnes. India is a small but important supplier to Asian buyers looking for prompt shipments.

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