Maize: Prices to gain momentum

India Infoline News Service | Mumbai |

In the domestic market, corn prices started its journey northwards since June 2012 tracking bullishness in the international corn prices. Prices touched a high of Rs1,484/qtl in the month of August 2012. Since then prices have corrected and are currently trading around Rs1,315/qtl.

Maize prices in the international markets have advanced since the first week of May 2013 on reports of delayed planting of corn in the US. US CBOT corn prices are currently trading around $661 cents per bushel a rise of 2% from the beginning of the month. Prices had softened marginally during the mid of the month due to jump in the plantings as the weather turned favorable. However, corn prices have declined more than 4% since the beginning of the year (2013) on expectations of rise in the crop plantation after witnessing a decline in 2012, the smallest plantation level since 2006. Corn prices in the third quarter of 2012, had sky rocketed as output plunged below the 5year average of 319 mn tons. Persistent dry weather in maize growing areas in the US during the quarter, a crucial maturity period, kicked started the rally in the corn prices. Average prices in the month of August 2012 touched a high of $804 cents per bushel. Prices thereafter softened as less than expected decline in the output numbers amidst fresh arrivals exerted a downward pressure. Since September 2012 till date prices have dropped more than 17%.  

In the domestic market, corn prices started its journey northwards since June 2012 tracking bullishness in the international corn prices. Prices touched a high of Rs1,484/qtl in the month of August 2012. Since then prices have corrected and are currently trading around Rs1,315/qtl. Although, lower arrivals in the domestic market due to humid weather in Bihar had pushed prices higher since the beginning of May 2013.

US corn planting jumped in week ended May 19 after remaining at snail’s pace 
After witnessing lower output in 2012, farmers are expected to cover record acreage under the grain during this year. According to the Planting Intention Report in April 2013, farmers are estimated to plant 97.3mn acres in the US up slightly from the last year. If weather remains favorable, this acreage would be highest planted acreage since 1936. However, due to humid weather conditions, corn planting in US was delayed in the early part of the sowing (mid of April). According to USDA, acreage under corn was 71% complete as on May 19, 2013 as compared to only 28% till the week ended May 12, 2013. This has weighed on the prices in the third week of the month. Overall, when compared with previous two years acreage under the corn is lagging behind.  In 2012 despite acreage being highest, the corn output declined due to persistent dry weather in the US.

In the domestic market, maize or corn is an annual crop and is sown both in the Kharif and rabi season. More than 70% of the corn crop is harvested in kharif season. Sowing of Kharif maize commences in June-July while harvesting is done from mid of September. In rabi season maize is sown in November through December and harvested in the month of March through June.

Global corn beginning stocks lower
Corn beginning stocks globally are lower due to fall in the output in 2012. Output in the last year globally fell by more than 2% while that in US alone plunged 127% due to persistent dry weather in the region. The US stands as the largest producer of the maize contributing around 37% to the total global output followed by China, EU and Brazil. Lower output of the grain in 2012-13 season has resulted into decline in the beginning stocks in 2013-14 season. Beginning stocks in US has slipped to 19.29mn tons in 2013-14 season while that globally has dropped to 125mn tons. If we analyze the beginning stocks of the US, corn stocks have observed a downward trend in the last 3-4 years. This has helped the average yearly prices to climb year on year. The beginning stocks of US for the 2013-14 season is well below the 5years average of 36.18mn tons. However, with expectation of record output this season the trend is likely to reverse in the next year. If weather remains conducive for the planted crop, the output may touch record highs thereby augmenting the supplies this year.

Consumption
Global consumption of corn summed to around 863mn tons in 2012-13. US stands as the major consumer of the grain, occupying around 31% followed by China (23%), EU-27(7%), Brazil(6%) and India(2%). Consumption in China is witnessing a steady rise over the last few years. In the domestic market, the consumption of the grain is spread over the various end users such as poultry (40%), food industry (20%), livestocks (15%), starch (10.3%) and remaining 15% is utilized for exports. 

Exports & Imports
Global exports of corn are largely to Japan followed by China, EU nations and Southeast Asian nations.  Exports stand around 101.8mn tons in 2012-13. During the last five years demand of corn from Japan has observed a steady growth while imports to China have witnessed a robust growth. Imports of corn into China currently stand around 7mn tons. Thus Chinese demand again is an important driver of the prices. India is a major supplier to these south east nations namely Vietnam, Malaysia, Indonesia due to limited requirement of the corn by these nations. Maize exports from India on an average sums to 3-3.5mn tons. 

Limited arrivals in the domestic market lending support to the prices
Corn in the domestic market is largely utilized as feed in the poultry industry. India occupies a miniscule part of 2% in the total global output. Average output of corn in India since 2005 is 18mn tons. Production of maize in Kharif season is estimated to be lower. According to the third advance estimates released in early part of May 2013, maize output was recorded at 16.08mn tons a fall of 2.4% in 2012-13. Output is however higher than 5 year average of 14.93mn tons. Production in the kharif season contributes 70% to the total output. Erratic rainfall in the last monsoon season resulted into a fall in the output.  Output in rabi season is estimated to climb to 5.73mn tons a rise of 8% as compared to last year. Arrivals currently of the rabi crop from Bihar region specifically Jharkand area is. A total of 107.4 tons has arrived in the month of May 2013 as compared to 217.03 tons in May 2012. 

Seasonality reflects prices may head northwards in the domestic market
Like other commodities, maize also follows a seasonality pattern. Maize prices in the domestic market tend to bottom out in the month of May due to peak arrivals (rabi) and thereon tend to climb northwards from June. Fresh demand from local stockists ahead of Ramzan tends to push prices higher. Prices continue to remain at the higher levels till August and thereafter scale down due to fresh arrivals from the kharif season. Currently, sowing of the kharif crops is lagging behind due to insufficient water supplies as compared to last year. 

Outlook

Maize output in the rabi season is estimated to be 8% higher as compared to previous year. In the short term (till mid of June) Maize/ corn prices are expected to initially witness selling pressure as the arrivals from the rabi crop have gained momentum. Apart from this, prices are also likely to take cues from the kharif sowing once the south west monsoon hits Kerala coast in the first week of June. If southwest monsoon rains are in time and witness proper advancement, farmers may cover more area under the crop as they have earned better profits from this grain during the previous season. However, downside in the prices is limited as according to the seasonality pattern, prices observe a rise from June through August due to revival in the demand. Thus, in the medium term (mid of June onwards) prices are likely to find support and move upwards.

Technically, maize July futures are likely to witness a correction and might find good support around Rs1,250/qtl. A bounce back in the prices is likely to be witnessed from there on. On the higher side prices are likely to test an initial resistance of Rs1,380/qtl  and thereafter towards the Rs1,450/qtl.

 

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