November 7, 2014
Asian feed millers caught short by surprise grain rally
Asian feed millers have missed the boat on multi-year-low corn and soymeal prices after a surprise rally in the futures market over the past few weeks, leaving them with hefty costs even as global supplies hit record highs.
Several millers in Asia's top importers, including Indonesia, Vietnam and Thailand, have been ordering cargoes over the last few months by locking in premiums they must pay over futures, but leaving that futures level to be fixed later.
US soymeal futures jumped more than 30% in October, while corn gained almost 18%, with markets ignited by fund buying, logistical bottlenecks and harvest delays due to wet weather in the US.
"A lot of buyers in Asia have bought premium so they have the physical goods, but of course they haven't priced their futures," said a Singapore-based trader who sells feed grain cargoes in Asia.
"They will have to pay a much higher price now."
When the outlook for grains markets was bearish, most importers fixed only one of the two components of prices. The premium on the commodity, which includes shipping and other costs, was being fixed, while the price traded on the futures market was to be set subsequently.
In a bullish market, importers typically fix the futures price at the time of signing the deal.
Asian demand for soymeal and corn, which are used to fatten animals, is rapidly increasing as a growing middle class consumes more high-protein meat.
Indonesia's soymeal imports are forecast to rise by nearly a fifth in two years to 3.9 million tonnes in the year to September, 2015, while Thailand is likely to see shipments climb around 10% to 3.1 million tonnes, according to the U.S. Department of Agriculture.
Vietnam has seen corn imports double in five years to 2.2 million tonnes in 2013/14.
Early last month, a group of Thai feed millers bought 110,000 tonnes of US and Brazilian soybean meal for shipment in February and April.
For US meal they paid a premium of US$110.50 over the Chicago Board of Trade March soymeal contract, which was trading at US$292.10 a short tonne at the start of October. If the buyers were to price the futures this week, they would have to pay around US$340 a tonne.