* US prices are high as drought devastates crops
* Asian buyers of US corn forge ties with competitors
* Prices would be key in keeping US dominance in exports
* Brazil, Argentina grab US market share
By Karl Plume
MINNEAPOLIS, Oct 24 The worst drought in half a
century has led long-time importers of U.S. corn to forge ties
with alternative suppliers, casting a shadow over the United
States' continued dominance in the export markets, said foreign
grain buyers at a conference here.
Major importers in Asia, including South Korea, Taiwan and
top buyer Japan, have turned away from the United States as U.S.
corn prices soared to record highs this summer, buying feed from
South America and producers in the Black Sea region.
China has not bought any U.S. corn since mid-summer and may
not make additional purchases before the spring of 2013, and
even then only if prices drop to more competitive levels closer
to $6 per bushel, said the grain buyers who attended the Export
Exchange industry conference on Wednesday.
Corn futures at the Chicago Board of Trade closed at
$7.54-1/2 a bushel on Wednesday, off the record high $8.43-3/4
set on Aug. 10 at the height of the drought rally.
China bought Argentine corn for the first time this year and
is working to venture into other markets such as Ukraine and
"The floor of competition for U.S. grain production rises
every day. This year is a wake-up year for us with the short
crop we had," said Thomas Sleight, president and CEO of the U.S.
Grains Council, which hosted the gathering.
"I would hope that the U.S. farmer comes back and comes back
strong, flexing their competitive muscle. But certainly, the
doors have been opened for the other suppliers," he said.
U.S. corn exports were projected to shrink this season to
the lowest point since the mid-1970s while rival exporters such
as Brazil and Argentina have seen export volumes soar to record
or near-record levels.
The loss of market share in Asia is of particular concern,
as key buyers there are projected to account for about a third
of all U.S. corn exports this year or 30.5 million tonnes.
Top importer Japan, in the 2011/12 (Sept/Aug) marketing
year, imported just 11.75 million tonnes of U.S. corn, the least
since 1986/87, according to U.S. Agriculture Department data.
Japan's use of corn in animal feed fell in August to a 20-year
low, as it switches to cheaper feed wheat.
U.S. corn exports to South Korea, a top-five importer, were
at a seven-year low last season while shipments to Taiwan
plunged to the lowest since 1976/77, USDA data showed.
"Because of the current high price we are not able to use
U.S. corn that much. The U.S. corn quality is reliable and
consistent so the industry wants to buy the U.S. corn as much as
we can, but because of the price it is not possible," said a
buyer with a major Japanese feed mill who asked not to be named.
Japanese demand for U.S. corn may revert to levels closer to
normal next year, but the relationships forged with South
American suppliers could resonate for years to come, he said,
adding that he could turn to South America if prices were lower.
U.S. market share may be in greater danger in South Korea,
traditionally a very price-sensitive feed grain buyer. The
country has imported large amounts of South American corn and
record volumes of feed wheat this year as a replacement for
high-priced U.S. corn.
"Three years ago, if the price spread between U.S. and South
American corn was $10 (per tonne), everybody would still choose
U.S. corn. Now, if U.S. prices are $10 higher, they are not so
sure because they have that experience with South American
corn," said a trader with South Korea's Major Feedmill Group.
Investments by U.S. agribusiness companies have also helped
to raise the quality of non-U.S. corn.
"Some American companies have become involved in South
American, Brazilian corn so the quality has improved and is now
acceptable for us. It used to be that we were afraid to buy
Brazilian corn," said Willis W.Y. Cheng, chairman of C.P. Group
in Taiwan, an integrated feed, poultry and swine company.
U.S. corn import prices have hovered $25 to $30 per tonne
above other origins, and he said he would resist making more
U.S. purchases until that premium narrowed to $5 or less.
U.S. exports will continue to benefit from a reputation for
reliable delivery and consistent quality, but investments made
by rival suppliers in roads, railways and port infrastructure as
well as seed technology and farming equipment have helped narrow
the competitive disadvantage.
"I'm most concerned about China and Japan. In China, we were
just getting into a consistent export profile from the United
States and they've always been concerned about relying on U.S.
productive capacity. Their forays into our competition is
concerning," said USGC's Sleight.
"We're entering a new world as far as grain sales."
(Reporting by Karl Plume; Editing by Bob Burgdorfer)