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Feature: Asian corn markets face headwinds in 2021 from high feed costs, diverted demand

Highlights

Pace of corn buying slower in 2021

Wide feed wheat-corn price spread diverts demand

Weather uncertainty over new crop in Brazil

Singapore — Asian feed buyers are facing heightened feed costs in 2021, resulting in a slower uptake of corn amid lower production, while grappling with poor demand brought on by animal disease and consumer demand not returning to pre-COVID levels despite governments gradually relaxing restrictions.

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Corn prices on a CFR Northeast Asia basis are currently trading at their highest levels since S&P Global Platts began assessing the market in August 2016, supported not only by a buoyant futures market but also high global freight rates.

Corn price rally supported by strong freight cost

Pent-up demand for commodities from grains to coal powered the dry bulk shipping market in the first quarter, then tight spot tonnage on the US Gulf Coast and the east coast of South America and a severe cold snap in early February pressured freight prices even higher on long duration front-haul routes out of the key grain-loading areas.

The Platts weighted average Kamsarmax Index, KMAX 9, which reflects global Panamax trade and is the main form of seaborne transport for corn, hit a year-to-date high of $28,448/day on March 23 and averaged $18,276/day in Q1.

Corn buying slows in Asia-Pacific

As corn prices rose in Q1, Asia's corn demand eased. Major regional importer South Korea's buying pace for corn to date in 2021 has lagged last year.

Platts records show feed millers uncharacteristically abstained from buying cargoes via public tenders in January and it was Feb. 4 before the first public tender for the year was issued. Prior to that, the last public tender was issued on Dec. 7, 2020.

South Korea corn purchases 2021 vs 2020

In Malaysia and Vietnam, buyers are supplementing their prompt corn needs with Indian supplies that are being offered at a more than $20/mt discount to South American corn due to a healthy crop this year. Sailing time is shorter and volumes are smaller at between 30,000-50,000 mt, which suit buyers' needs better amid sluggish consumption.

Vietnam's customs data released April 12 showed that corn imports from India peaked at 296,000 mt in March, up 270% from February, which is unprecedented as Argentina and Brazil are the main origins for Vietnam corn imports.

In Malaysia, feed demand has fallen as the population of chickens dropped around 20% year on year. Demand collapsed during the country's movement restrictions to contain COVID-19, forcing some producers to shutter operations, said Jeffrey Ng, senior adviser and former president of the Federation of Livestock Farmers Associations of Malaysia.

Chicken prices have doubled in the last month to Malaysian ringgit 6.30/kg ($1.53/kg) and could go higher with international feed costs escalating, he added.

Cheaper feed wheat replaces corn

Cheaper feed wheat has also diverted demand away from corn. South Korean feed millers generally switch to feed wheat when its price falls 10% below that of corn.

South Korea has bought 825,000 mt of feed wheat to date in 2021, surging from 395,000 mt in the same period a year earlier, and equating to 41% of the total purchase of 967,000 mt in 2020, according to Platts data.

The corn to feed wheat replacement is most evident in major importer Feed Leaders Committee or FLC's buying patterns, as South Korea's two other major consortiums, MFG and NOFI, have a portion of inelastic feed wheat demand due to their cattle businesses.

So far this year, FLC has booked 130,000 mt of feed wheat for October arrival compared with none in 2020, Platts data showed, highlighting the replacement taking place in South Korea due to the price competitiveness of feed wheat relative to corn.

However, it remains unclear how long the trend will persist as wheat prices are currently finding support from pent-up demand from the feed complex in Southeast Asia.

China's hog herds rebound

China's hog herd has rebounded for six consecutive quarters since being decimated by an African Swine Fever outbreak in 2019; national inventory stood at 415.95 million in Q1, an increase of 94.75 million or 2.3% from Q4 2020, and up a sharp 29.5% year on year, National Bureau of Statistics data released April 16 showed.

However, some corn market participants believe that further recovery may not be as swift and that ASF remains a big threat in certain parts of China.

"No one knows the real numbers; I have spoken with a number of producers and industry people who say it is very serious and as bad or worse than 2019 -- especially in Henan, Shandong and Liaoning provinces," a source familiar with Chinese hog markets said.

The strong Chinese corn buying for its herd rebuild has boosted US exports for the 2020-21 crop year, with total sales commitments 93% above the year-ago level as of April 15. The surge in demand has helped to push CBOT corn futures prices to multi-year highs.

While sales commitments quickly met the US Department of Agriculture's estimate for total annual exports, concerns remain over whether all outstanding sales will ship during the current marketing year.

Uncertainty over the impact of ASF has also raised doubts around US export corn sales shipments.

China alone holds 13.7 million mt of outstanding US corn export sales, and delayed shipments or cancellations resulting from reduced feed usage could significantly increase the US' corn carry-out supply.

Brazil exports to spur recovery, but crop at risk on weather concerns

Given the sluggish pace of corn buying from the Asia-Pacific to date in 2021, traders are anticipating that demand in the region will return as export season ramps up in Brazil, the second-largest corn exporting nation after the US.

Concerns about Brazil's second corn crop have intensified as rainfall continues to be inadequate and farmers fear the corn yield could be hit.

Notwithstanding weather concerns, corn production in Brazil is forecast at a record 109 million mt in the 2020-21 marketing year, according to CONAB.

Brazil's domestic corn feed demand is also expected to remain strong in 2020-21, which may restrict the volume of coarse cereal available for export.

Domestic corn prices have soared. The corn price indicator tracked by Centro de Estudos Avançados em Economia Aplicada or CEPEA rose 4.48% to Real 97.91/60 kg bag ($293.30/mt) April 19, a new real record, while in some places, sellers are already quoting above Real 100/60 kg bag, CEPEA said in a note previously reported by Platts.

Brazil's Agriculture Ministry on April 20 announced that the waiver on import tariffs for corn, soybean and soyoil from countries outside the South American Mercosur trade bloc have been extended from March 31 to the end of the year in a bid to curb inflation.