Global Markets: Coarse Grains – South Korea Diversifies Corn Suppliers

    Photo: Zach Larson, Pennsylvania State University

    South Korea was once a market where U.S. corn did reliably well, but in recent years it has noticeably diversified its suppliers for corn. Excluding the drought-affected 2012/13 year, U.S. market share in South Korea has fallen to the lowest level since 2004/05. Though global corn trade is inherently concentrated in several major and some secondary exporters, South Korea has proven willing to import from a wide variety of suppliers.

    Of the top five corn importers in 2020/21 (Oct-Sep), U.S. corn dominated in China, Mexico, and Japan. Ukraine was the predominant supplier to the European Union, followed by Brazil. In contrast, South Korea imported similar volumes from Argentina, Brazil, and the United States, as well as residual amounts from secondary exporters like Russia and Paraguay.

    The Herfindahl-Hirschman Index (HHI) is a measure of market concentration. It is calculated by squaring the market share of each competitor and summing these numbers, resulting in a value between 0 and 1. An HHI closer to 0 represents a market with many competitors, each with small market share, whereas an HHI closer to 1 represents a highly concentrated market. As such, Mexico has a 2020/21 corn HHI of 0.90 since 95 percent of its corn imports were from the United States.

    Of course, the United States has an advantage in geographic proximity to Mexico, which has a livestock sector that is well integrated with the U.S. corn market, contributing significantly to the dominance of U.S. corn. Of the top 5 importers, South Korea has the lowest HHI at 0.24, quantifying its variety of origins.

    Per reporting from FAS/Seoul, reportedly high levels of broken corn and foreign material in U.S. corn have been a recurring issue for Korean importers. As a result, some buyers have turned away from U.S. corn loaded in the Pacific Northwest (PNW) and are even willing to pay a slight premium for South American origins to avoid PNW-loaded corn.

    In 2021/22, USDA currently forecasts record or near-record corn production for the major exporters: Argentina, Brazil, Ukraine, and the United States. While global trade is expected to grow once again, with the recent emergence of China as a robust demand source for U.S. corn, South Korea has turned to alternative suppliers such as Argentina, which currently does not export corn to China.

    This has itself manifested in just 7,000 tons of reported corn imports from the United States year to date (Oct-Dec). Moreover, outstanding sales to South Korea at this point in the year are the lowest in at least 5 years at just 2,000 tons. Given the data available so far, it seems that the trend of lower U.S. corn market share in South Korea could continue in 2021/22.

    A Look at Corn Ending Stocks in Major Exporters

    Global corn trade has grown, supported by rising demand for competitively priced feedstuffs around the world. Argentina, Brazil, Ukraine, and the United States have been the major suppliers, accounting for 85 percent of global exports.

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    Combined ending stocks held by these countries, however, have tightened steadily and are currently estimated to be about a quarter of their exports in 2020/21, lower than the average of the past several years. Combined ending stocks are projected to grow for 2021/22, but still relatively tight with little room in the case of global production shortfalls or unexpected import demand surges.

    Ending stocks for Argentina, Brazil, and Ukraine are projected to remain small as a large portion of their production is typically destined for foreign markets. Domestic use for Argentina (26 percent) and Ukraine (19 percent) is small relative to their production. For Brazil, the second crop corn, which accounts for threequarters of the national production, is primarily destined for overseas, while first-crop corn is used in the domestic market.

    In comparison, the United States has ample storage facilities and a large level of consumption. On average over the past several years, 85 percent of the U.S. crop is used domestically. Again, the United States is projected to carry the lion’s share of exporter ending stocks for 2021/22.

    Other producers maintain large stocks (e.g., China), but generally only exporters’ stocks are available to world markets. Typically, exporters’ stocks are inversely related to global prices. Several factors have been supportive of current price levels – continued growth for global feed demand, smaller supplies of other grains (and oilseeds) due to last year’s Northern Hemisphere droughts, relatively strong demand for fuel ethanol in the United States, and concerns over crops in South America.

    Much of the late planted corn in Argentina is in a critical phase of development, while in Brazil, rapid planting progress of the second-crop corn in the Center-West contrasts with dry conditions in the South. It is likely that exporter prices will remain elevated as long as the size of the corn crops in Argentina and Brazil remain uncertain.

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