South Korean feed makers are eager to import Chinese corn for shipment next year because import costs of US corn have soared as a result of near-record freight rates, traders said on Wednesday. The Korea Feed Association is seeking Chinese corn for up to 157,500 tonnes of optional-origin tenders for arrival in February through April, an official at the group said.
Korean feed makers annually consume nearly seven million tonnes of corn, and they import almost all of their needs mostly from China or the United States, depending on price and availability each year.
Despite the burdens of carrying stockpiles, many feed makers have sought to buy Chinese corn in recent weeks, although some think they still have time to wait for a decline in shipping costs.
Traders said Chinese corn prices, even without government subsidies, are below those for US corn because of lower freight rates. Panama freight rates for benchmark route from the US Gulf to Japan were quoted at $70-$75 a tonne on Tuesday, near record highs of $75-$80 seen in February.
"Although it is a burden to manage stocks, feed makers are trying to buy more Chinese corn, as US corn costs too much on freight," a Seoul-based trader in a foreign supplier said. In the past week, members of the Major Federal Group have bought as much as 105,000 tonnes of Chinese corn for arrival from end-December this year through April next year, priced around $145-$148 per tonne on a cost-and-freight (C&F) basis.
That's more than $10 per tonne lowers than US corn for optional-origin supplies. If only US corn is required, it can be offered over $170 per tonne C&F in the Korean market, traders said.
"Chinese and US corn prices based on free-on-board are similar at around $100 per tonne, but including freight rates, the gap of the two prices is huge," another Seoul trader said.
For Chinese corn cargoes to be shipped after March, international buyers, including South Korean feed makers and international suppliers, have to assume risks associated with the expiration of 2004 export quotas at the end of February.
Beijing has yet to clarify its 2005 corn export policy. The Korea Feed Association's regional members in Pusan said the group was considering buying Chinese corn instead than US corn for late February arrivals.
"We are concerned how long and how much Chinese corn would be available in the markets," a senior member of the group said.
Nonghyup Feed Inc one of three major feed makers groups along with the Major Federal Group and the Korea Feed Association said it believes freight rates are too high and it plans to wait for a drop in freight rates, possibly in January.
"If we have to buy Chinese corn, we can still buy in January for February arrivals because the shipments would not take long," a senior trader at Nonghyup Feed said.
Panama dry bulk rates have risen to more than a third above their levels a year ago, driven by voracious demand in China and across Asia for iron ore and grains, especially for shipments before yearend.
Corn futures, however, tumbled to 2-1/2 year lows in Chicago on Tuesday, with the fundamental outlook for corn remaining bearish, with exports quiet and US farmers were concluding the harvest of their largest corn crop in history.