Spotlight. Maize prices to stay put on plentiful supply

The Indian maize market is passing through an unexciting phase. Record harvests in 2016-17 covering kharif and rabi seasons have augmented the availability of the cereal this year for the user industries, such as starch and animal feed.

Adequate domestic supplies will likely continue to keep prices on a leash, while export and import activity is rather muted because of price disparities.

To be sure, maize is one of the success stories of Indian agriculture in recent years. Production has been expanding steadily since 2006-07 (15.1 million tonnes) and touched 24.2 million tonnes (mt) in 2014-15. El Nino-induced poor precipitation saw the harvest size shrink to 22.6 mt the following year. But thanks to reasonably well-distributed, near-normal, south-west monsoon, production has reached a new high of 26.15 mt this year, exceeding the annual target of 24.5 mt.

The Indian situation largely mirrors the global situation. World corn (maize) production reached a new high of 1,054 mt in 2016-17, thanks to a rebound in harvest in Argentina and Brazil. Brazilian corn harvest this year is 40 per cent higher than in the previous year and has set a new record of 93.5 mt.

World corn trade will remain largely unchanged from last year’s record of 145 mt. Trade is dominated by the US as the world’s largest producer and exporter. US corn exports account for 35-40 per cent of world trade. Global stocks this year are set to reach a new high of 223 mt.

As a result, export prices have turned weak. While offers from the US are at about $160 a tonne, those from the Black Sea region, especially Ukraine, are around $170 a tonne. Importers are keen to take advantage of the prevailing consumer-friendly rates.

The livestock sector is a principal consumer of corn while in producing countries such as the US, the cereal is also used for ethanol production.

Currently, local prices are at around ₹16,000 a tonne, far higher than international rates. So, there is no possibility of corn export out of India. Logically, world prices should encourage maize import into India; but that too is not feasible because of import duty of 51 per cent.

To be sure, only non-GM (non-genetically modified) maize is allowed for import into the country. Such produce is available from origins like Ukraine. Non-GM maize offers are seen at $200 a tonne landed at Indian port. Add to that the specified import duty and the business becomes unviable. However, some consignments do enter the country under the advance licensing scheme, which is duty-free but comes with an export obligation.

The starch industry, for instance, imports low-priced maize and re-exports derivative products.

Domestic maize prices are most unlikely to be disturbed from their current levels in the coming months, given the market fundamentals. Demand from the poultry industry is adequately met. Feed substitutes such as oilseed extractions are also cheap. That also caps the upside price possibility for maize.

The outlook for 2017-18 depends on how the south-west monsoon eventually pans out in terms of spatial and temporal distribution. Unlike pulse growers, maize growers have received prices generally above the minimum support price of ₹1,365 a quintal. It stands to reason to believe that the planted area under maize in the upcoming kharif season will be retained at about 8 million hectares or may expand marginally.

The key to higher production is, of course, yield increase. There is scope to raise the current average yield of 2.5 tonnes to well over 3.0 tonnes, especially in the kharif season, with improved input management and agronomic practices.

The writer is a global agri business and commodities market specialist

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