SINGAPORE (Reuters) – South American exporters will grab a bigger share of the Asian feed grain business this year as traditional heavyweight, the United States, struggles with quality woes and higher prices.
A similar story is playing out in the soft red winter wheat market, where grain from the Black Sea region is seizing market share from the U.S.
Asia’s top feed grain buyers, Japan, South Korea and Indonesia, have started snapping up new-crop corn and soy meal cargoes from Brazil and Argentina, where record soybean and corn crops are expected this year after a year of drought.
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Stiff competition from South America could keep a lid on Chicago soybean and corn prices, which in turn affect canola and wheat prices.
“U.S. domination over the Asian grains business is being challenged this year,” said Toby Hassall, an analyst with CWA Global Markets in Sydney.
“There is a shift towards South American origin as the export pipeline starts to fill. There have been quality issues regarding the U.S. crops.”
Japan, the world’s biggest corn importer, which takes the bulk of its 16 million tonnes of annual imports from the U.S., has already contracted for about one million tonnes from Latin America for 2010 shipment, its biggest purchase of non-U.S. corn in more than a decade.
Importers in South Korea, the world’s third largest corn importer that buys seven to eight million tonnes annually, have renegotiated corn purchase terms after running into quality issues with U.S corn, which was hit by rainy, cool weather during the autumn harvest.
“We had great quantity, but the quality was suspect. And now buyers see that a great crop is coming out of South America,” said Joe Victor, an analyst with Allendale Inc., a consultancy based in McHenry, Illinois.
The U.S. Department of Agriculture is expected to trim its U.S. corn exports forecast by 50 to 100 million bushels from its latest estimate of two billion bu. for the marketing year to August 2010, U.S. analysts say.
Meanwhile, U.S. cash soft red wheat prices are higher than world prices due to tight supplies of quality wheat in storage and uncertainty about the size and quality of the 2010 crop.
U.S. SRW wheat export sales are down 40 percent from the previous marketing year, with sales to Egypt, a particularly cost-conscious buyer and historically the top importer of U.S. SRW wheat, down 77 percent.
“The rise in spot cash reflects domestic users having to look around a little bit harder for higher quality SRW wheat. Whoever holds a pretty good quality SRW wheat is going to raise their prices,” said Terry Reilly, analyst with Citigroup.
Elevated levels of vomitoxin in the 2009 crop have boosted premiums for milling and export-quality supplies. Most export contracts prohibit wheat containing more than a trace of vomitoxin, a byproduct of fusarium. Large amounts can sicken people and livestock.
The crop to be harvested this spring was planted on the smallest acreage in 97 years and some has been subject to overly wet weather, putting yield and quality in doubt.
Asia’s top five corn importers, which annually buy about 30 million tonnes, will probably ship around a quarter of their corn this year from South America, traders estimated.
The region’s five biggest soymeal importers, which import 11 to 12 million tonnes a year, are expected to source 60 to 70 percent of their meal from South America and the rest from the U.S. and India.
Typically, South America accounts for 45 to 55 percent of the Asian soymeal business and less than 10 percent of corn imports.
