Prices to take near-term direction from weather developments in U.S. maize areas

by Stormy Wylie
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Fears of drought in major U.S. maize growing areas will play a major role in determining price direction for maize over the next month or so, as worrisome drought conditions persist going in to the U.S. planting season for the 2000-01 maize crop.

As of mid-March, large areas of the so-called "Corn Belt" in the United States already were in a severe stage of drought, according to the U.S. Drought Monitor. The monitor is a multi-index drought classification scheme developed by several agricultural and climate-related government and academic agencies, including the U.S. Department of Agriculture and the National Oceanic and Atmospheric Administration.

Drought stages range from D0, abnormally dry, to D4, drought exceptional. As the planting season approached, conditions in nearly all of Iowa and Nebraska and large parts of Illinois were classified in the D2, or severe, category. Those states are the top three maize-producing U.S. states, accounting for 45% to 50% of total U.S. output every year.

Adding to the crop concerns as of mid-March were forecasts that precipitation in the region would be at or below normal through May, which includes the peak of planting season. And a longer-term U.S. outlook released in mid-March pointed to persistent dryness through much of 2000 in many critical crop areas.

The actual drought and the potential for its continuation helped to rally maize prices during the first three months of this calendar year. Although prices at mid-March remained near the low end of the range set in the past four years, they were well above the lows set in June-July 1999.

Other fundamentals also helped support maize prices in recent months. Surprisingly large U.S. cattle-on-feed inventories contributed to higher than expected feed use, resulting in reductions to the projected 1999-00 U.S. maize surplus.

Demand fundamentals internationally also brightened a bit, as the mid-1990s trend in parts of Asia of declining feed use and subsequent demand for coarse grains clearly has been reversed. Analysts attribute the turnaround to a slow but steady economic recovery in that region.

The key coarse grain markets of Malaysia, Indonesia, Thailand and South Korea should continue their demand rebound at least through the end of the current marketing year. In Indonesia, maize consumption for 1999-00 should reach 6.8 million tonnes, up 3% from the previous season. While that total remains lower than the peak use of 7.3 million tonnes in 1995-96, it is well above the depressed level of 5.8 million in 1997-98.

In the cases of Malaysia and Thailand, maize consumption in 1999-00 should reach 2.7 million and 4.4 million tonnes, respectively. Not only are those use levels significantly higher than in the nadir year of 1997-98, they represent record highs for each country.

South Korean maize use in 1999-00 is expected to reach 9.05 million tonnes, just short of the record 9.14 million tonnes consumed in 1995-96. The 1999-00 total will exceed the previous season's mark by about 19%.

The turnaround in maize use in those countries will also mean a corresponding increase in imports. In aggregate, the four countries are expected to import about 17% more maize in 1999-00 than in the previous season.

The increase in Asian imports will contribute to a jump in global maize trade to about 70.4 million tonnes, up from 68.8 million in 1998-99 and the highest level since 1994-95. Exporters expected to benefit from the increased trade with larger shipments include Argentina, South Africa and China. Exports from the United States are expected to slip by about 7.5% amid stiff competition and high domestic feed demand.

China's maize exports are expected to reach 8 million tonnes. Although that total is far short of the country's record shipments of 12.6 million tonnes in 1992-93, it marks the nation's fourth highest export total and represents a surge from the 3.3 million exported in 1998-99.