* With corn at record, Asia to see higher meat prices
* Australia almost out of feed wheat
* Most Asian buyers short on grain supplies
* Ample rice to ease impact of red-hot corn prices
By Naveen Thukral
SINGAPORE, July 30 As corn prices climb past the
record levels hit this time last year, a major factor has
changed for Asian importers of the grain: Australia no longer
has heaps of cheap feed wheat as a substitute.
For a region that buys just under half the world's traded
corn, the 25 percent jump in cash prices since the start of June
for the main animal feed ingredient means more costly pork,
chicken and beef by the end of the year.
The worst U.S. drought since 1956 has pushed Chicago corn
futures, the global benchmark, to a record above $8 a
bushel. What is really going to hurt feed makers, and eventually
Asia's rapidly growing ranks of meat lovers, is the lack of
Asian buyers last year replaced some 7-8 million tonnes of
corn with feed wheat, worth about $2.0-$2.2 billion. This came
mostly from Australia, but stocks there are being run down
"It is a very tough situation for the feed industry and we
feel prices will stay high for the entire season," said the head
of grains trading at one of Malaysia's biggest feed mills.
"Substitutes are not going to be cheap."
Australia's record 29.5 million tonnes 2011 harvest was hit
by late rains, which damaged the quality to the point where a
third of the wheat was feed quality, fit only for animals. This
followed a similar downgrade in 2010.
This year Australia is likely to produce a smaller,
high-quality crop, which means no topping up of depleted feed
"We are offering standard milling wheat for the feed market,
even locally," said Stefan Meyer, a manager for cash markets at
brokerage INTL FCStone in Sydney. "I have sold prime hard
milling wheat to a feed mill in Melbourne."
As the supply of Australian low-quality wheat dries up, the
discount against high-quality milling wheat has shrunk to just
$10 a tonne, from $70 at the end of last year when the crop was
Other countries that could also supply Asia are struggling.
The Black Sea region and South America have battled with dry
weather, while India looks likely to keep most of its ample
grain stocks at home, given that monsoon rains are running a
fifth below normal.
Global grain importers expected the U.S. to produce a record
crop to ease a tightness in supplies the industry has faced
since 2011. But more than a month of relentless heat across the
U.S. Midwest has hammered the crop.
A Reuters poll on U.S. corn production forecast the lowest
yields in a decade. The government recently cut its estimates
for the harvest by 46.2 million tonnes, or 12 percent, from its
Asia's top consumers China and India have large grain
stockpiles to cushion the impact. But traders said in countries
with smaller buffers the bulk of the region's livestock industry
has not covered feed grain needs beyond September.
"They have been caught unawares, caught naked," said a
senior grains trading manager at an international trading
company in Singapore.
"As of now they are shying away from the market, but come
October they will have to come back."
Traders estimated that world number one corn buyer Japan has
bought ahead for just two months of imports, or around 2.5
million tonnes, while Malaysia has locked in three months of
supply. Vietnam and Indonesia are covered for just one or two
months of imports.
Farmers would rather slaughter animals than pay for
expensive feed. So while the cost of meat for consumers could
dip initially, tighter supplies will fuel prices during the high
consumption winter months.
"Then you have the worst case scenario, a shortage at home
and you can't buy much from the international market because
supply everywhere is tight," said Jean-Yves Chow, a senior
livestock industry analyst at Rabobank in Hong Kong.
Rising food prices are a headache the region's policy makers
can do without as they try to tackle slowing economic growth.
Cutting interest rates, a typical policy response to boost
economies, could stoke inflation.
Still, while meat will get more expensive, plentiful
supplies of rice means little chance of a rerun of 2008, when a
spike in prices for staple foods caused widespread unrest.
That is scant comfort to farmers.
"We are worried about our future," said Donal, whose poultry
farm some 60 km south of Jakarta, Indonesia, has some 100,000
chickens. "I am afraid of losses in the coming months when
Ramadan is over and chicken meat demand and its price decline."
(Additional reporting by Michael Taylor and Yayat Supriatna in
Indonesia; Editing by Michael Urquhart)