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Analysis: Competition fades, but other factors keep US corn exports slow

New Delhi — US corn exports have yet to gather pace in the current season despite prices getting more competitive and South American supply levels easing, with analysts attributing the slowness in shipments to inconsistent US trade policies, higher domestic consumption and a lack of export demand.

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In the current marketing season that began in September, the volume of US corn inspected for export totaled 11.494 million mt, almost 51% below the same period last year, according to the US Department of Agriculture data.

On the other hand, Brazilian corn exports have picked up and the country exported a record 41.2 million mt of corn in the 2018-19 marketing year, up 74% year on year, according to the by national agricultural agency. The 2018-19 marketing year in Brazil refers to the period between February 2019-January 2020.

Last year, major corn importers were seen shifting away from their traditional market -- the US -- to Brazil, amid better prices for Brazilian corn and the absence of US corn in the market.

US exporters are also competing with ethanol plants that have been paying higher prices, according to Pete Meyer, head of grains and oilseed analytics at Platts Analytics.

In fact, bids along the rivers for exports have been much weaker of late when compared to ethanol, Meyer added.

The USDA in its latest estimate cut US corn exports for 2019-20 to 1.725 billion bushels (43.82 million mt), a decrease of 50 million bushels from its previous forecast, while corn consumption for ethanol was raised by 50 million bushels to to 5.425 billion bushels.

Moreover, corn consumption by the animal protein industry in the US is also rising.

Grain-consuming animal units in the US are projected at 103.1 million units in 2019-20, up from 100.73 million in 2018-19, the USDA said in its feed outlook report released Thursday.

With rising animal units in the US, livestock producers are snapping up corn for feed, said Terry Reilly, senior commodity analyst with Futures International.

US TRADE POLICIES

Major industry players continue to remain wary of the volatile policy environment seen in the US in recent times, analysts said.

"US trade policy has shaken confidence in the US as a reliable supplier. At times, from a foreign buyer perspective, it looks like the rules can change at the drop of a hat," said Stephen Nicholson, president of Rabo Agrifinance.

To assist farmers suffering from the effects of these trade policies, the US government offered payments to farmers through the Market Facilitation Program (MFP).

US farmers received the final payments under the MFP last week.

With the MFP payments, farmers do not need to sell corn for cash flow and seem unwilling to accept current prices offered for exports, Meyer said.

GLOBAL DEMAND AND SUPPLY

An analysis of export data for Mexico, Japan and South Korea, the major buyers of US corn, showed Brazil gained a substantial market share in these three countries on the cost of the US in 2019.

While there are indications of US corn exports improving in the recent weeks, it may be short lived.

Argentina will be coming with its supplies in the market in March, and Brazil in June-July, leaving a very narrow window for the US to push their supplies into the market.

"Argentina has been predictably slowing down the pace of corn exports, but with the progress of the corn harvest, a strong comeback is expected after March," USDA's feed outlook report said.

Brazil's corn exports are also expected to accelerate in July when the second corn crop reaches the market, it said.

With requirements of major importers already covered, the demand for corn is also likely to be subdued in the near term, analysts said.

During most of 2019, US corn prices remained stronger than Brazil and Argentinian corn. However, easing of price competition recently has not helped the US to gain that market share back.

"It's true that US FOB prices are now competitive on the world market at face value. But currency exchange rates still make it difficult to compete on the global market, except for those markets where we have a competitive freight advantage" said Arlan Suderman, chief economist with INTL FCStone.

Farmer selling remains slow, necessitating that domestic users bid up the price to keep supplies flowing, and that's making it difficult for exporters to compete considering the currency issues, Suderman added.

The Brazilian real hit a new low recently against the US dollar, falling below the 4.34 level for the first time ever.

Brazil has nearly exhausted supplies, and corn exports from the country have come down significantly in recent weeks.

On Thursday, corn FOB Up River, Argentina, was at $177.07/mt, according to S&P Global Platts data, while US corn export price was at $177/mt, International Grains Council data showed.