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Analysis: US corn exports face headwinds from South American suppliers

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Analysis: US corn exports face headwinds from South American suppliers

Highlights

US corn less competitively priced

Key buyers Mexico and S Korea turn to other suppliers

US prices seen strong amid low output, strong local demand

London — US corn exports are expected to face pressure, especially in the first quarter of the new marketing year starting September 2019, due to rising competition from South American suppliers, which have not only boosted production, but are also more competitively priced.

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S&P Global Platts Analytics expects US corn exports to be at 50.8 million mt in 2019-20 (September-August), below US Department of Agriculture estimates of 54.61 million mt.

As of July 25, total export commitments for corn in the current marketing year (September 2018-August 2019) were down 16% from last year and current export commitments to key consumers for 2019-20 suggest that the pace of corn exports is likely to be slow in the coming months.

"South Korea, which normally commits around 1.25 million mt of new-crop US corn around this time of year, has zero 2019-20 US commitments on the books," said Terry Reilly, senior commodity analyst with Futures International. "Mexico has about 2.0 million mt. This time last year Mexico had 2.7 million mt of new-crop US corn committed."

South Korea is nearly covered for the remainder of 2019 calendar year and Mexico is lagging behind average for securing US corn because it has also been buying from other SouthAmerican countries, Reilly told S&P Global Platts this week.

In 2018, Mexico and South Korea were among the top three importers of US corn.

MAKING INROADS

South American countries are eating into US' market share in major markets, official data showed.

US exports followed the "normal" trend until Brazilian and Argentinian crop became available in the market, after which US exports began declining, Stephen Nicholson, analyst with Rabo Agrifinance, told Platts.

Brazil exported 8.7 million mt of corn between May and July 2019, compared with just 1.4 million mt during the same period of last year, according to Brazilian trade departmentdata.

Argentina exported 11.13 million mt of corn during March-July 2018, but exports between March and July 15 this year have already passed 16.5 million mt, Argentinian agriculturedepartment data showed.

"Countries like South Korea have slowed US corn imports and turned to Brazil," Reilly said.

Customs data from Vietnam, another large importer, also showed that most of the corn imports in the last few months have come from Argentina.

Brazil and Argentina are expected to harvest a record crop of 101 million mt and 51 million mt in 2018-19 (March 2019-February 2020) respectively, according to USDA's estimates.

According to USDA, the 2018-19 local marketing year in Brazil and Argentina runs through March 2019-February 2020.

SHRINKING APPETITE

US corn is less competitive than South American corn as anticipated reduction in yield and production this year due to weather-related issues are keeping local price high, making it less attractive for importers.

The Brazil feed corn (Paranagua) export price as of August 6 was $171/mt and Argentina feed corn (Up River) was at $163/mt, both considerably cheaper than the US 3YC (Gulf) price of $185/mt, according to International Grains Council data.

Planting of corn in the US has been delayed by inclement weather conditions, raising concerns over yield and quality.

"There may also be quality issues this fall, due to early frost, overall wet growing season, and I have noticed a bit more insect pressure this year," Rabo Agrifinance's Nicholson said.

The US is estimated to produce 352.44 million mt of corn in the 2019-20 marketing year, which is the lowest since the 2015-16 marketing year and 3.9% down year on year, according to USDA's World Agricultural Supply and Demand Estimates.

US corn will continue to carry a premium due to steady demand from domestic feeders and ethanol producers, which has driven the short crop values higher, said Collin Watters, director of exports and logistics with Illinois Corn Growers Association.

In the last four marketing years, the US has exported 13.0%-17.2% of the corn produced, with the rest was consumed by the domestic market.

"The market has weakened in the last few days, but I anticipate prices climbing as we move forward," said Collins.

Since domestic supplies are seen tight this year, farmers are likely to hold on to their production for as long as they can, Collins said, adding that local demand has strengthened in many areas, especially from ethanol producers that have obligations to fulfil.

"Assuming export competitors' corn price remains below US prices, I think there is little doubt that US corn exports will be hurt. After the 2012 drought when US corn were at amuch higher level than today, U.S. corn export dropped 52.5% in 2012/13 versus 2011/12 crop year," Rabo Agrifinance's Nicholson said.

-- Mugunthan Kesavan, mugunthan.kesavan@spglobal.com

-- Shikha Singh, shikha.singh1@spglobal.com

-- Edited by James Leech, james.leech@spglobal.com