SINGAPORE/SYDNEY (Reuters) — An abundance of rain-soaked Australian wheat is set to further dampen U.S. and South American corn prices in 2012, as key corn importers switch to the cheaper, damaged grain for animal feed.
Japan, the world’s biggest corn buyer, and corn-hungry South Korea and China are scooping up Australian wheat, as they seek to reduce costs — and food inflation — in the face of the global economic uncertainty.
This spells bad news for the world’s largest corn exporter, the United States, whose grain is already competing with more attractive Black Sea supplies, as well as traditional rivals in South America who are on track to add to plentiful supplies through a bumper harvest.
U.S. corn futures, the benchmark for global grain market, slid 7 percent in November and analysts predict prices to come under further pressure in the new year.
“We have very significant downgrades in quality right across the grain-belt in eastern Australia, potentially more damage yet to happen in New South Wales,” said Adam Davis, a senior commodity analyst at Merricks Capital in Melbourne.
“These rains are going to create a situation where there is prolonged competition for corn.”
Australia, the world’s fourth largest wheat exporter, is on track to produce a near-record crop of around 26 million tonnes.
Rains over the past few weeks have, however, given the nation an ample supply of poor quality grains for a second straight year. The east-coast wheat belt, which produces high-protein prime hard wheat, has been the worst hit.
“Sprouting grain is proving difficult for some farmers and there has been some loss of quality,” said Claire Armstrong, spokeswoman for CBH Group, one of the country’s top grain shippers, referring to the wheat harvested in Western Australia.
“The high moisture content is degrading the value.”
CHEAP AND PLENTIFUL WHEAT
U.S. corn exports are already suffering at the expense of feed wheat and cheaper corn shipments from the Black Sea region.
Japan, which annually buys some 16 million tonnes of corn, mainly from the United States, has imported Ukrainian corn this year, with sales of almost a million tonnes reported last month.
The latest figures by the USDA, last week, said net corn export sales in the previous week totaled 280,600 tonnes for shipment in the current marketing year and 71,600 tonnes for 2012/13, near the low end of the range of trade forecasts for combined-marketing-year sales of 350,000 to 450,000 tonnes.
After supplying four out of every five kernels of corn traded internationally in the mid-1990s, the United States’ market share was projected to shrink to 45 percent this season.
The cheap Australian wheat is likely to mean even lower U.S. corn sales in the future.
China, the world’s second biggest corn consumer and who is known for its savvy shopping habits, has so far shied away from buying U.S. corn despite Chicago prices dropping below the psychological support level of $6 a bushel last week.
In fact, China has been taking new-crop Australian wheat instead, in addition to using its own large wheat reserves.
China bought some 4 million tonnes of corn so far this year and analysts estimates for 2011/12 range from 5 to 10 million tonnes.
“This is potentially another bearish influence on U.S. corn prices,” said Luke Mathews, a commodity strategist at Commonwealth Bank of Australia (CBA). “Asian feed grain users will be quite comfortable using Australian feed wheat in the year ahead rather than taking U.S. corn.”
Prices are also playing a key role in purchasing decisions. This week, Australian feed wheat was traded into Southeast Asia at $255 a tonne, including cost and freight, compared with U.S. corn sold to Taiwan at $323.50 a tonne.
Asian buyers, who have been using Australian feed wheat for nearly a year, are likely to continue with the cheaper alternative.
“It is not just U.S. corn, even South American corn shipments will be hit because the price difference of $50 to $60 between the two commodities is a lot,” said one Singapore-based trader who sells feed grains into Asia.
Australia is estimated to have a supply of some 8 to 12 million tonnes of feed wheat in 2012, made up of last year’s unsold stock and damaged grains from this year’s harvest.
Australia’s wheat exports for the marketing year to September 2012 could hit 19 million tonnes, up from 18.3 million tonnes in 2010/11, according to USDA estimates.
That means there will be a lot of cheap Australian wheat in the market for quite a while, analysts said.
“The combination of record carry-over wheat supplies, of which half is feed quality, and the current grain quality downgrades will result in another 12 months of record feed grain availability in Australia,” CBA’s Mathews said.
Posted by Haylie Shipp