Feed millers in Vietnam have canceled corn and soymeal import shipments, after a steep drop in global prices, in a move that could compel suppliers to offer sharp discounts and chalk up huge losses, three trade sources said.
Men carry corn on their head at a factory of a buying agent in Son La province, west of Hanoi, November 19, 2012.
Cancellations from one of Asia's fastest growing feed grain markets could further drag on global corn and soymeal prices, which have plunged 25-35 percent in the past three months as ideal U.S. crop weather promised to add to world supplies already swollen from a bumper South American output.
Buyers in Vietnam have refused to honor deals to import some 200,000 tonnes of corn and 150,000 tonnes of soymeal in the past few weeks, the trade sources said.
"It is a horrible situation, some ships are still waiting as buyers are renegotiating deals," said one Singapore-based trader who had direct information about contracts being canceled.
"Prices have dropped so much that they are not willing to take the cargoes."
Feed millers are currently being offered Brazilian corn at $200 a tonne in containers, down from $275 they promised to pay three months ago for a panamax cargo which typically carries 50,000 to 60,000 tonnes.
For soymeal, the price drop is steeper with cargoes this week being quoted at $475 a tonne, down $100 from when the deals were signed in July-August.
In the cash market, Brazilian soymeal is quoted at $417.80 a tonne, on a free on board basis, Paranagua port for November shipment, versus $545.75 in early September.
Corn is priced at $184.96 a tonne for October arrival on the U.S. Gulf, down from $224 at the start of June.
U.S. corn production is estimated to climb to an all-time high of 367.68 million tonnes this year and soybean output is forecast at a record high of 106.87 million tonnes.
Letters of credit
Buyers who had not opened a letter of credit at the time of signing deals were facing difficulties in getting cargoes financed from banks after the drop in prices.
"Banks are refusing to finance cargoes as they know their customers will not be in a position to pay back when they make a loss of $75 to $100 a tonne," said a second Singapore trader, who sells feed grains in Vietnam.
A majority of the affected shipments is from Brazil and Argentina, main suppliers to Vietnam where consumption of high-protein meat products has been going up with rising incomes.
Vietnam has seen corn imports doubling in five years to 2.2 million tonnes in 2013/14 and soymeal purchases have jumped to 3.1 million tonnes this year from 2.5 million tonnes 2008/2009, according to the U.S. Department of Agriculture data.
Top agricultural trading companies have boosted their presence in Vietnam with Bunge Ltd recently opening a soybean processing plant near its terminal at Phu My Port.
Vietnam is home to several small feed mills that buy smaller parcels of a few thousand tonnes from trading firms, making it easier for them to walk away from contracts, traders said.
One large importer is sitting with 50,000 tonnes of soymeal, bought at $580 a tonne, including cost and freight, which is at least $100 higher than the current price, the second Singapore trader said, declining to give the name of the importer.
"There is at least 100,000 tonnes of corn which is still being renegotiated," said a third trade source.
"It is very difficult for traders to reduce prices by $75 to $100 a tonne, it is a big loss."