Commodity prices stable, but increase over the year; The China Story – increasing corn consumption.

Commodity prices stable, but increase over the year

The average corn prices across the country remained stable at about Rs.6500 per Mt at the market yard. The prices were higher than last year by 9.1%. Taking the average prices over the year, Nov – Sept (11 month period), the average delivered price of maize in 2004-05 was Rs.6833 per MT, while in 2005-06 the prices increased to Rs.7321 per MT, an increase of over 7.21% in one year. This increase has surely increase the cost of production eggs and poultry meat and have reduced the profitability of the farmers in this one year, wherein the farmers also suffered a huge loss due to bird flue episode. The increased cost of production of end products is also an issue with the starch manufacturers, whose profitability would also be affected. There is also an indication that in order to cover the losses or keep the profits stable, sale price of the maize products (starch and other value added products) is increased, which will affect the other users also, like textile, pharma, candy, food, paper etc.

Though the market yard prices of barley were reported to be lower, some areas reported higher prices, indicating a higher trade margins due to slower deliveries into the market yards and a lower production. The prices this week indicate a upward trend and reports available indicate a higher price of Rs.7600 per MT. The prices are close to last year levels at this time of the year. The delivered prices thus would be close to Rs.9000 per MT, which is much higher than the anticipated price. Even though the barley consumption in brewery and beverages sector has grown significantly in the last few years, it is still lower than international standards.

Sorghum prices at the market yard have come down to Rs.7300 per MT, lower than last week’s prices by 7.6% and also lower than last year’s prices by 7.7%. the prices are still significantly higher than maize (12.3%).

Pearl Millet prices in this one week have come down to Rs.6200 per MT, about 4.3% lower than last week, and also 2.5% lower than last year.

The khariff (summer) crop for maize is estimated at 11 MMT and if the Rabi (winter) crop production is added (1.8 MMT), the total production for the year will be about 12.8 MMT as per GOI estimates. The end users sector is of the opinion that the khariff production of maize is about 9.45 MMT and addition of 1.8 MMT in Rabi would make the total of 11.25 MMT. The demand of maize in India is expected to be 13.86 MMT for the year 2006-07. The overall deficit based on industry and GOI production figures could be a low of 1.06 MMT to a high of 2.6 MMT, without taking into account exports to Nepal and Bangladesh.

With such a high demand and low availability the prices are expected to remain high over the next year as well, till steps are taken to stabilize the prices.

Prices of Corn at CBOT moved up by about $3 per MT over last week to 103.28 per MT.

The China Story – increasing corn consumption

China is expected to produce 142 MMT of corn this year, but its own consumption is likely to be much higher than anticipated leaving little for exports, as per the experts.

Some experts believe that the corn consumption in China will grow due to the demand from the industrial sector and the demand from the feed sector may stagnate.

The industrial processing capacity in China which was 50 MMT in 2005 is expected to increase to 70 MMT by 2006 end and 85 MMT by 2007.

Current consumption by industrial sector would be close to 30 MMT in the next year, and most of the new additions are due to new projects for biofuels (ethanol). A new project is likely to come up in Inner Mongolia (North China), which will process 1 MMT of corn a year to manufacture ethanol. Other products include Glycol production, processing 360,000 tons of corn in a year to produce 200,000 tons of glycol.

Demand for other corn-based products, such as High Fructose Corn Syrup (HFCS) as a replacement of sugar is growing, leading to new projects. This is because Chinese become more health conscious and their standard of living rises.

Amit Sachdev
Representative
U S Grains Council, India
bluecross303@gmail.com

Sept 30, 2006