South Korea’s corn buyers await ‘trigger’ as cheap corn isn’t enough

Some of the cheapest corn prices in years are not enough to stoke fresh buying from key end users such as South Korea’s feed sector, with traders saying the industry is likely to need a secondary trigger other than low prices to kickstart further demand.

South Korea is one of the biggest importers of corn in the world, with players such as NOFI, MFG, FLC, and KFA fueling import demand that the USDA estimates should account for around 10.4 million mt of corn in the 2018/19 marketing year.

“They have covered a lot so they can wait. Many have bought January arrival corn already. All are waiting for MFG to move now before they come back,” one trading source said of the situation, with even the sight of Chicago corn futures hitting contract lows failing to stimulate demand.

“MFG must cover an end of January arrival. Actually, the trigger can come from... whoever comes back to the market to buy,” a second market source said.

Collectively, the industry has bought around 670,000 mt of corn for January arrival since prices began to fall at the end of July, with NOFI picking up 275,000 mt, KFA 193,000 mt and FLC 120,000 mt.

MFG, however, is only thought to have picked up one cargo of 69,000 mt of corn from Olam in a private deal on August 19, raising expectations that the company will need to secure at least one more cargo in a move that could spark further buying.

Corn futures have seen a spectacular reversal in a few short weeks, as fears of oversupply in the US market slashed prices by 23%.

The December corn futures contract settled at a peak of just over $4.68/bu on June 17 but has slumped sharply to just over $3.58/bu on September 4, with signs that the price falls were not stoking new demand only adding to the gloom.

Such a marked price move can spark buying from the sector, as was seen earlier in the year when fears the US-China trade war would lead to US farmers switching their planting intentions to corn shaved around 4% off futures.

This sparked a buying spree that soaked up around 4 million mt of supply.

However, in so doing South Korea secured much of its corn supply for the balance of 2019, providing industry players with a cushion that has blunted full-blooded demand since then.

Against that backdrop, outright price is less significant than the price at which rival companies are buying, with the sector now focusing on locking in future supply at price levels that are competitive with their fellow feed makers.

“It just needs some trigger, as you have seen earlier this year when buying triggers more buying,” the second market source said.