A record 2 million tonnes of South American corn is being sent to the United States this season to compensate for last year's weak harvest, industry sources based in Buenos Aires have said.
The Brazilian and Argentine corn - mainly being used in Virginia and North Carolina as chicken and hog feed - is expected to keep flowing northward until September, when the new U.S. crop starts being harvested, they said.
After the worst drought in decades parched the Midwest farm belt in 2012, U.S. commercial-use corn stocks are thinner than they have been since the 1990s. This is bad news for pork, poultry and beef producers facing historically high prices for corn-based animal feed.
"The United States bought about 1.5 million tonnes of corn from South America between September 2012 and February 2013. That was mainly Brazilian corn," said a trader at a major exporting company, who asked not to be identified.
"In the second half of the corn year, between March and August, the United States will buy 500,000 to 600,000 tonnes, mainly from Argentina. Eighty percent of this volume has been closed but not executed yet. The balance will be closed soon," said the trader, who has direct knowledge of the transactions.
The data was confirmed by a Buenos Aires-based grains broker, who also spoke on condition of anonymity. Both said they did not anticipate a repeat of such big northbound trades next year, as U.S. corn stocks are expected to recover.
"These days, Argentina is one of the cheapest sources of corn in the world," the broker said. "We expect to keep seeing Argentine corn go to the United States through June, when Brazil will take over again as the source through August."
The U.S. government expects 3.2 million tonnes of corn imports this season, with Canada providing about one third of that amount.
Cash corn prices at Argentina's Rosario port have increased modestly in the past two weeks from about 10 cents a bushel under futures to roughly 10 cents over futures, or about $260 per tonne free on board (FOB).
But prices remain well below the cost of corn in the United States, where basis values this spring are near historically high levels at many locations.
East Coast corn users in particular have been relying on imports because the cost of shipping less-expensive corn from South America is lower than that of shipping U.S. corn from the Midwest by rail.
Including ocean freight from South America of about $30 to $35 per tonne, Argentine corn shipped to the U.S. East Coast would cost about $290 or $295 per tonne. U.S. corn shipped by rail to locations near the East Coast was priced at $300 per tonne or more, trade sources said.
INFLUX WELCOMED
The United States is usually the world's top corn exporter, but outgoing cargos are set to fall to 19 million tonnes this year, their lowest since 1971.
Corn growers from the world's top three producers - the United States, Brazil and Argentina - are in Buenos Aires this week to launch a Western Hemisphere producers' bloc called the International Maize Alliance, or Maizall, which will collaborate on trade, food security and biotechnology.
Representatives of the U.S. grains industry said they welcome the influx of South American corn in times of need.
"We are not anxious about South American corn going to the United States because it keeps from having demand destruction," said Julius Schaaf, vice chairman of the U.S. Grains Council.
"If there was no corn to feed livestock on the U.S. East Coast, they would just cut back their flocks and lower their use of corn. Then when we have a huge crop this year there would be no demand for it," he said.
"This has been an opportunity to show that the world is flexible and grains can flow in every direction."
The United States is expected by the U.S. Department of Agriculture (USDA) to produce 359 million tonnes of corn this year, up from 274 million in 2012.
With most of Argentina's 2013 crop already harvested, the USDA sees the South American country's output at 27 million tonnes.
"Having corn available from more than one continent adds stability," Schaaf said. "In the future, grains are going to move around the world to wherever they need to go and wherever it makes sense financially, driven by the market."
