Asian Corn Demand Seen Gaining as Drought Shrivels U.S. Crop

Asian Corn Demand Seen Gaining as U.S. Drought Hurts Exports
Farmer Andy Stoll looks over drought damaged field corn near his home in Idaville, Indiana, U.S. Photographer: Daniel Acker/Bloomberg

Increased demand for corn imports by Asian nations including China is set to strain global supplies just as drought in the U.S. reduces shipments from the world’s largest grower, according to Rabobank International.

China may import at least 8 million metric tons in 2012-2013 from about 5 million tons in 2011-2012, Jean Yves Chow, senior industry analyst, said in an interview yesterday. Japan may import 16 million tons, up from 15.5 million tons, he said.

Corn rallied to the highest level since September this week as hot weather across the Midwest hurt yields, prompting the U.S. Department of Agriculture to cut its projection for this year’s harvest by 12 percent. Goldman Sachs Group Inc. joined Citigroup Inc. and Credit Suisse Group AG in boosting price forecasts.

“We will see less exports from the U.S., and it comes to a question where supplies will be from amid strong demand from Asia,” Chow said. “China, which used to export corn to South Korea, will be importing almost as much as South Korea.”

December-delivery corn advanced to $7.48 a bushel on July 11, the highest level since Sept. 13. The most-active contract, which traded at $7.4475 at 4:46 p.m. in Bangkok, is poised for a fourth weekly gain as U.S. crop conditions deteriorate.

Chow’s forecast for China’s imports is more bullish than that from the USDA, which projects shipments to the country at 5 million tons in 2012-2013, unchanged from last year. South Korea may import 8 million tons of corn in 2012-2013, while Japan may take 15.5 million tons, according to the USDA.

Commercial Farms

China’s increased demand is driven by the rising need for feed grain as the country’s backyard farms are replaced by commercial farms that use about 50 percent to 55 percent of corn in their feed formula, Chow said.

China will harvest a record 197.5 million tons of corn this year from 191.75 million tons in 2011, according to the Food & Agriculture Organization. Still, even with the rising output, imports of cereals will increase, the Rome-based United Nations agency said in an e-mailed report yesterday. China’s corn imports will climb 1 million tons to 6 million tons, it said.

World grain output will be lower than expected a month ago as the worsening conditions in the U.S. hurt the outlook for the corn harvest, the FAO said on July 5. Farmers across the world will harvest 2.4 billion tons of all grains this year, less than the amount forecast on June 7, the FAO said.

‘Before the Drought’

“Global supply-demand was tight even before the drought,” said Chow, who joined Rabobank in 2007 and covers grains, animal-protein and food-processing markets. “We started the year with a low inventory base.”

The USDA reduced its outlook for the U.S. corn harvest to 12.97 billion bushels (329.45 million tons) this year, from a June prediction of 14.79 billion bushels. The forecast for global output was cut to 905.2 million tons, from 949.9 million tons last month, the USDA said. U.S. exports may total 40.6 million tons in 2012-2013, unchanged from 2011-2012.

Dry weather in parts of China increases “the risk of high corn imports,” Goldman Sachs said in a report on July 11, without giving a forecast for volumes that may be bought from overseas. The bank raised its prediction for corn prices to $6.90 a bushel from $6.30 in three to 12 months.

China’s imports may total 20 million tons by 2015, according to a forecast from Olam International Ltd., the Singapore-based commodity supplier, last October. Cofco Agri-Trading & Logistics Co., a unit of China’s biggest grain trader, said the same month that shipments by 2020 may be as much as 20 million tons.

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