November 1, 2012


Asian grain buyers face higher costs as South America's supply shrinks


Following relentless exports from South America since April, Asian feed grain buyers will face higher costs as supplies from the region dwindle, with a devastating drought curbing yields across the US grain belt.


The prices of South American cargoes being offered in Asia for January and February shipment have started inching closer to the US values, leaving the buyers with little choice but to pay more.


A rebound in US corn demand could buoy the benchmark Chicago futures which have fallen for three straight months as importers shunned expensive grains after prices surged to a record high of US$8.49 a bushel in August.


"Right now, the Chicago market is beaten down as week after week we have seen reports showing poor US exports," said a senior trader at an international trading company in Singapore. "As soon as you see buyers are turning to US supply, the prices will rally."


The USDA said last week corn export sales stood at 142,400 tonnes, below estimates for 150,000-250,000. Soy sales also were lower than expected at 522,200, versus estimates of 650,000-850,000 tonnes.


Corn spot basis bids eased at processors, ethanol plants and river terminals around the US Midwest on Tuesday (Oct.30), pressured by poor ethanol profit margins and weak export demand, grain merchants said.


Barge freight costs held steady on Midwest Rivers after rising water levels led to steep declines in shipping costs in recent days.


South Korea's Korea Corn Processing Industry Association this week bought 55,000 tonnes of optional-origin corn for arrival by March 2013 at US$334.30 a tonne, including cost and freight, while the Korea Feed Association bought 63,000 tonnes of South American-origin corn at US$327.93 a tonne.


The spread between US and South American corn quoted in Asia has narrowed to less than US$10 a tonne, from about US$2-30 few weeks ago for shipment in December and January.


"If you look at the global demand for early next year, I do not think South America and for the matter even Ukraine have enough supply," said another Singapore-based grains trader.


The market is closely watching the crop weather in South America and any delay in planting could send corn and soy prices to near record highs seen in August and September.


Argentina could lose 20% of its projected corn crop and 10% of its soy this season as violent storms lash the Pampas, turning prime farmland into implantable mush, a local expert said on Tuesday (Oct.30).


Heavy rains since August have swamped Argentina, the world's No. three soy exporter and No. two corn supplier. Top soils have been flooded in the farm belt, which has just barely recovered from a December-January drought that decimated 2011-12 crops.


"The wet weather in Argentina could be serious if it continues like this," said the second Singapore trader. "People are depending heavily on South American supply from March onwards and any delay will force buyers to fall back on tight US supply."

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