Feature: Strong growth in Asian feed industry as US, Brazil compete for market dominance

Singapore — With the new 2019-2020 marketing year for US corn kicking off at the start of September, Asian buyers are watching if the US will regain its top spot as the world's biggest corn exporter, or if its South American rivals will maintain their tight grip.

In 2018-2019, Brazil and Argentina were the top suppliers of corn to Asia as US corn was handicapped by climate challenges and strong output from South America.

The US Department of Agriculture's World Agricultural Supply and Demand Estimates Report in August revealed that US' total corn exports for 2018-2019 fell 17% to 50.1 million mt from the previous year, while Brazilian exports rose 47.3% and Argentinian exports surged 63.64%.

SOUTH AMERICAN CORN IN ABUNDANCE

Brazil's National Supply Company reported that production of the second crop corn safrinha in 2018-2019 increased 35.6% to a record 73.07 million mt.

In Argentina, the situation was similar with output up 59.4% to 51 million mt from 32 million mt a year ago, USDA WASDE reports showed.

US corn production, on the other hand, inched a mere 1.3% lower, but Mother Nature prevented corn from leaving the continent for months, forcing frustrated sellers to store their grains and losing market share to South American suppliers. Flooding in the Midwestern US since mid-March created logistics problems, which propelled corn prices on the Chicago Board of Traders sharply higher, resulting in record delivered corn prices in Asia.

ASIAN CORN PRICES SURGE ON WEATHER CHALLENGES

Front month CBOT corn futures climbed 32.7% from the low of $3.42/bushel on May 5 to the year-to-date high of $4.55/bu on July 17. The high waters receded in June, but corn futures stayed firm as the wet fields forced farmers to postpone planting for the new crop year. Delayed planting meant lower yields and ultimately a smaller US crop, providing no reason for prices to fall off their high perch.

But everything changed on August 12 when the USDA report forecast a higher-than-expected crop yield and ultimately higher harvest, which sent shockwaves through the market and sank the corn futures. Trading was halted as futures fell by the 25 cents/bu limit movement. December CBOT corn contract slumped 6% from $4.10/bu August 9 to $3.85/bu August 12.

ASIAN BUYERS FACE HIGHER FEED COSTS

Despite the supply length globally, Asian buyers are still subjected to higher feed cost due to CBOT futures. S&P Global Platts data showed that CFR Northeast Asian corn price rose 25% from the 2019 low of $182/mt on May 13 to the year-to-date high of $229/mt on July 15.

ASF HITS FEED DEMAND

Asian feed corn demand was hit by the African Swine Fever this year, which decimated the hog population, especially in China. It has spread to seven Asian countries, including Mongolia, North Korea, China, Laos, Cambodia, Vietnam and most recently, Myanmar, according to the World Organization for Animal Health. The virus has resulted in mass culling and dented feed corn demand.

In Vietnam, ASF was reported on February 19 and 2.5 million pigs were culled, according to the Ministry of Agriculture and Rural Development. Vietnam is the second biggest corn importer in Asia, after Japan. Based on USDA Foreign Agricultural Service data, feed demand thus far has remained strong as the livestock sector including cattle, poultry and fisheries industries have grown, offsetting the decline in hogs. FAS data showed Vietnam's 2018-2019 corn imports were at 10.2 million mt, up 8.5% from last year.

South Korea has not been hit by ASF and feed demand remains strong. Based on livestock statistics published by Statistics Korea, total livestock expanded 1.4%-1.9% annually.

USDA CROP PROGRESS RELEASE

Asian buyers are waiting to see what the next monthly crop progress report by the USDA, due for release September 3, would reveal about the US' new harvest.

S&P Global Platts Analytics completed their US crop tour in mid-August and estimated US production to be roughly 13.6 billion bushels for 2019-2020, compared with the USDA's 13.9 billion-bushel projection.

"While a much deeper dive of all the data will be forthcoming by us, Platts Analytics saw nothing this week [August 23] that would cause us to change our objective yield modeling at 165.7 bu/acre [in the US]," Pete Meyer, head of grain and oilseed analytics at Platts Analytics, said.

US CASH PREMIUMS SHOW DECLINE

With the problems in the Mississippi river earlier this year, cash premiums for US Pacific North West corn have been too high for buyers to consider. Offers for October and November shipments were over $1/bu FOB, while Brazilian corn have been trading at 20-40 cents/bu FOB Santos.

In the last week of August, US PNW cash premiums have slipped, with offers at around 85 cents/bu for November shipments. Brazilian cash premiums are still trading in the 30s-cents/bu.

With strong demand growth in Asia, continued high output in South America and uncertainty in the US harvest, it remains to be seen who will be crowned top corn supplier in the new marketing year.

-- Elizabeth Thang, elizabeth.thang@spglobal.com

-- Edited by Norazlina Jumaat, norazlina.jumaat@spglobal.com