Commodities 2023: Inflation, competition for supplies to influence Asian corn fundamentals

Asian feed corn buyers enter 2023 following high market volatility and record high prices in 2022, with demand in the new year seen facing some resistance as Asia grapples with inflation and sluggish economic growth.

The global grains industry suffered from a fallout of the Russia-Ukraine war in 2022 as it was recovering from the pandemic. Platts, part of S&P Global Commodity Insights, assessed CFR Northeast Asian corn at a record $425/mt March 14, as the war cut Ukraine's corn supply and US crop planting was delayed, while a bumper Safrinha crop in Brazil provided some relief.

China diversified its corn suppliers away from Ukraine and the US, in a move that saw Brazilian corn inflows accelerating to China in November following phytosanitary certifications and genetically modified crop approval.

South Korea, a major buyer in Asia, imported steady volumes of corn year on year despite record-high corn prices and volatile physical and futures markets. South Korean customs data showed 10.79 million mt of corn was imported over January-November 2022. Trade records compiled by S&P Global show that the country purchased 737,700 mt corn for December, placing the 2022 total at 11.5 million mt.

China's appetite for Brazilian corn

China's Brazilian corn purchases are expected to increase competition for supplies to Asian destinations. However, the US Department of Agriculture, or USDA, has forecasted another bumper corn crop in Brazil at 126 million mt in the 2022-23 season (October-September), up 10 million mt from the previous year, that could alleviate supply concerns. Brazil's grain exporting group Anec estimates that Brazil could export up to 5 million mt corn to China in 2023.

China imported over 1.3 million mt corn from Ukraine as of Dec. 27 since the introduction and extension of the Black Sea Grain Initiative. However, slow inspection rates are seen encouraging China to continue reducing its dependence on Ukrainian corn.

The USDA's China attaché expects Chinese domestic corn production to remain stable at 270 million mt in 2022-23. The deficit volume fulfilled by imports will depend on the Chinese corn balance sheet and the economy's recovery post COVID-19, market sources said.

"Some recovery in Chinese demand is expected in 2023. It will be a bigger game-changer for corn prices next year versus Argentina's crop," said a Singapore-based grains trader.

The USDA and S&P Global estimate China to import 18 million mt corn in 2022-23. S&P Global has highlighted a potential downside to that number because of COVID-19. China imported 23.9 million mt corn in 2021-22, according to customs data compiled by S&P Global.

Southeast Asian demand weak

Vietnam, once a top global corn importer, has seen imports slow because of African swine fever, higher interest rates, a weak Vietnamese dong, and increased inflation.

Vietnam's corn exports are expected to fall for the second straight year. The country's corn imports stood at 8.4 million mt over January-November 2022, according to its customs data, while 2021 corn imports dropped 20% from 2020 to 9.7 million mt. Market participants are doubtful that total imports will cross 9 million mt in 2022.

Buyers in Asia have been buying hand to mouth as they enter 2023 because of elevated prices for agricultural products and feed raw ingredients. "[Southeast Asian] buyers are not actively seeking inquiries for shipments several months ahead at the moment," a Singapore-based trader said.

The biggest issue is that buyers are not keen on pushing for more deferred purchases, and that's partially due to growth uncertainty in local economies and rising cost of funding, said another trader.

Feed wheat substitution likely

Supply tightness and high US corn prices will spur buyers to seek alternatives until another bumper Brazilian crop enters the market.

Feed wheat could substitute corn in the first half of 2023 following another record wheat crop in Australia and high volumes of feed quality wheat.

"Argentina's first corn crop is smoked from the dryness, and Black Sea remains a war event. With US domestic demand still strong, the focus will be on Australian feed wheat from January to May shipments," said a trader.

Indian corn alternative

Southeast Asian buyers have turned to India for cheaper sources of corn in 2022, but such a strategy has its flaws entering 2023. India could consider curbing exports in response to rising domestic corn prices pressuring the domestic feed and poultry industry, market sources said.

While the market remains skeptical, it is too hasty to eliminate the likelihood of an export ban. Traders said the Southeast Asian market would turn to South American corn or nearby origins, such as Pakistan and Myanmar, in 2023 if export restrictions on Indian corn come into effect.