After facing years of depressed prices, traders were finally able to profit from high corn prices in 2018. CFR North East Asia corn prices rose to an all-time high of $231.25/mt on March 12, but prices remained mostly above the $200/mt CFR level for most of 2018, based on S&P Global Platts data. The Asian 2019 corn outlook will be dominated by the potential entry of China into the international corn market, with stable demand expected in South Korea, Japan and Taiwan and expected flagging demand from Southeast Asian markets.
WILL THE CHINESE DRAGON ROAR FOR CORN
The trade war between the US and China may be easing, with the G20 meeting on December 1 between President Xi Jinping and President Trump resulting in limited Chinese buying of US soybeans. Markets are now talking about the possibility of the Chinese buying spree extending to US corn and derivatives.
On December 11, China's agriculture ministry raised its corn import estimate to 2.5 million mt, from the earlier 1.5 million mt, citing increased feed demand. The China Agricultural Supply and Demand Estimates report said that corn consumption in the year commencing October 2018 would increase by 5 million mt from the initially projected 250.8 million mt.
China's monster corn stocks depleted in 2018 due to its growing E10 fuel blending mandate. As China ramps up ethanol production capacity, the US looks more relevant as the main exporter of corn to China.
US PNW FOB values increased dramatically during December from 90-92 cents/bu over March CBOT, FOB US PNW for February cargo to 115-120 cents/bu over March CBOT, FOB US PNW for February-March.
Chinese corn demand is market chatter currently, traders said, with no information from the government, but there may be some truth in the talk. "Something is surely being discussed," a major trader said. Chinese buyers could enter the market, in a surprise move over Christmas, he added.
Traders were also talking about Chinese buying of US ethanol and dried distillers' grains or DDGs, which are corn derivatives. If the Chinese demand does not materialize, traders expect US PNW corn FOB values to fall in early 2019. With a large 2019 US crop expected and healthy South American supplies, US PNW values will have to correct drastically to take the North Asian business, trading sources added.
The US may restart the domestic rail incentive, a major trader said, to allow the US elevators to discount their corn by $3-$5/mt and become competitive for April or May shipments.
The US was the most competitive corn seller into north Asia for most of 2018 as the US-China trade war resulted in the Brazilians selling soybeans to China at attractive premiums. The US had no choice but to sell corn to the rest of the world, as it got cut out of the Chinese soybeans market.
If China becomes a sustained corn buyer, international corn prices, and world corn demand would increase. Market sources expect China to buy 3 million mt of corn in 2019 and Asian buyers are waiting to see China's next move.
JAPAN SHORTAGE UNTIL Q1
Japanese corn buyers have been very short in 2018, with the trend expected to continue at least until the first quarter. Japanese trading houses, who take positions on corn six to nine months in advance of delivery have switched to buying spot cargoes, loading one to one-and-a-half months ahead.
The US Department of Agriculture's World Agricultural Supply and Demand Estimate report released in early December, said Japanese demand will be stable around 15 million mt per year, but trading houses have been conservative in a year of higher corn prices.
With the financial year for Japanese trading houses ending around Q1, traders will not be expected to take any outsized risks.
SOUTH KOREA TO COMPETE WITH CHINA
South Korean 2019 demand, according to the US Department of Agriculture is expected to be stable around 10 million mt per year, but buyers there are keenly watching the Chinese. South Korean buyers would be direct competitors to Chinese corn buyers since they buy similar vessel sizes. The South Korean buyers are well covered into 2019, with demand for early to mid-May arrival cargoes, but China's entry into the market could disturb their position as Asia's sharpest purchasers. The Koreans have postponed their buying for May arrivals as prices rose in December, but is expected to buy flat price cargoes at dips in the market price in 2019.
SOUTHEAST ASIAN DEMAND OUTLOOK CLOUDY
Southeast Asian nations of Vietnam and Malaysia have been regular corn buyers in 2018, but the 2019 outlook is cloudy. The USDA WASDE report predicts 2019-20 marketing year corn demand of 4 million mt from Malaysia and 10 million mt from Vietnam, but real demand is somnolent.
Malaysia had seen the heavy arrival of South American cargoes beginning second half 2018, but domestic corn resellers complained of full warehouses and reduced domestic corn prices in a difficult market where demand was weak.
Vietnam recovered well from a 2017 loss of demand due to weak pork prices. Corn imports for 2017-18 into Vietnam were around 9.5 million mt, according to USDA estimates, but Vietnamese buyers also complained of slowing domestic demand during Q1 2019, and overflowing warehouses. Traders said that Vietnamese domestic traders who have bought cargoes on the CFR market were struggling to sell their corn and soybean meal domestically because domestic prices are more competitive, and big feed millers have been quiet at the moment, sources said.
