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New Delhi — The recent trade agreement between Japan and the US may not push Japanese buyers to import extra corn from the US unless they receive an incentive in the supply chain that can offset current US corn export prices which remain on the higher side, analysts said.

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In August, the US and Japan agreed to a preliminary trade deal worth $7 billion of goods, which included Japan buying more corn from the US. The final details of the agreement are yet to be revealed.

Japan was expected to buy 2.5 million mt of additional corn from the US, according to media reports.

However, Japan is already the second-largest buyer of US corn after Mexico, and its annual corn import projections for the next five marketing years are consistently projected at around 15.2 million mt by the US Department of Agriculture.

ROOM FOR DEMAND

In the 2018-19 marketing year (September-August), the world's top corn exporter US shipped 12.6 million mt of corn to Japan, according to the US Departmentof Agriculture's Foreign Agriculture Service data.

According to the latest estimates from the USDA, Japan's total corn imports are expected to hit 15.8 million mt in 2018-19.

In 2019-20, Japan's corn consumption is expected to hit 15.6 million mt, the same amount which it expects to import in that period, according to the USDA.

Even if the US had supplied 100% of Japan's corn needs for the 2018-19 marketing year, that would only be an additional 3 million mt and would have helped support prices, according to Texas-based agriculture service company GrainStats.

However, the exporting countries which lose this demand to Japan will compete away export demand from the US so the extra sales almost cancels itself out to a degree, GrainStats said.

"Japan would be rash if they took 100% of their corn from one source, so I do not see any US corn sales increase in the cards," said Michael McDougall, managing director at PGM.

Pete Meyers, head of grain and oilseeds at Platts Analytics, said he saw little space for the US to push those extra corn volumes into Japan.

COMPETITION FACTOR

The USDA in August cut US total corn exports to 52 million mt in 2019-20 from a previous estimate of 54.6 million mt, driven by rising competition from countries such as Argentina and Brazil.

Importers in Japan would require an incentive in the supply chain to drive buying of more corn from the US instead from South American suppliers, such as either in freight or some sort of reduced tariff or subsidy, GrainStats said.

Brazil shipped 2.6 million mt of corn to Japan between September 2018 and August, compared with similar volumes exported in the same period a year earlier,according to data from Brazil's Ministry of Industry, Foreign Trade and Services.

Brazil, the world's second-largest corn exporter, has seen shipments picking up pace in recent months as harvest of safrinha corn, or second corn, started early this season. Brazil's monthly exports in August reached an all-time high of 7.7 million mt, according to Brazilian government data.

HIGHER EXPORT PRICES

In Japan, private entities are involved in the buying of grain products. While the Japanese government can suggest buying from US exporters, it will come down to prices, Meyers said.

US corn export prices shot up in May and June by around 16% from April levels on fears of production getting hit after unprecedented wet weather conditionsdelayed corn planting in key Midwest states by 2-3 weeks.

US yellow corn CIF New Orleans basis was assessed at an average $150/mt between February and September, compared with Brazil corn FOB Santos at $146.1/mt, and Argentina corn FOB Up River at $139.5, according to S&P Global Platts data.

Trading sources said corn offers would have to fall at least $11.81/mt basis to make US corn competitive for Japanese buyers.

Markets are still waiting for some concrete information on the US-Japan trade development, Meyers said.

The US National Corn Growers Association said it was continuing conversations with the government to learn more details on what the development will mean for America's corn farmers.

LOCAL CROP CONDITIONS

A Japanese government official recently said the nation's decision to buy extra corn from the US was backed by the need of rising demand following the fallarmyworm presence impacting the local corn production.

Fall armyworms were detected for the first time in Japan in July, according to the Food and Agriculture Organization. The pest primarily affects corn crops.

According to an analysis of Japan data from the USDA, Japan produced 1,800 mt of feed corn in 2017.

As the longer cultivation period for corn in Japan potentially exposes the crop to diseases, the country's feed corn production remains limited and requires higher imports to meet the local consumption demand, according to the USDA.

-- Rohan Somwanshi, rohan.somwanshi@spglobal.com

-- Edited by Daniel Lalor, daniel.lalor@spglobal.com