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Corn price pressure soars into 2004

21-Apr-2004

An increase in sales volumes, favourable currency conversions and improved pricing helped the US maker of syrups for soft drinks, Corn Products International, offset the rising price of corn in the first quarter. But as global corn stocks reach critically low levels, prices in 2004 are predicted to soar for the raw material, biting into margins for food manufacturers and starch suppliers in Europe.

Used in Europe for starch production and in distilling, corn prices in the EU zone rose dramatically last year on account of poor European harvests due to a hot summer in 2003, notably in France and Italy, that destroyed 25 per cent of the harvest. Compounding the situation, global stocks dropped to 20 year lows as the world's leading corn crop producers, led by the US, also saw crops beaten by severe weather conditions.

"The key corn focus for the last 12 months has been availability and price," Gerald Mason, an economist at the UK industry group Home Grown Cereals Authority (HGCA) tells FoodNavigator.com.

 

The dynamics of the European corn market, that operates at a premium, differs from the world market in that supply and demand of corn in the EU-15 bloc is relatively balanced. However, if companies need to top up supplies from the internal market through imports from non-EU countries, they have to pay high import tariffs. A dissuasive factor that means firms will prefer to opt for corn alternatives rather than pay the duty.

 

"The EU generally operates at a premium on the world market, but with the terrible harvest this year the premium rose to an extreme of 40 to 50 per cent," said Mason.

 

In the last few months food companies looking to make up for the EU shortfall in corn have been forced to turned to non-EU imports to top up supplies, but this in turn has sent up internal prices for food ingredients firms and manufacturers in the EU belt.

 

"In September, October and November EU corn prices rose sharply in parallel to the world market because they had to reach the point where it became economically viable to import non-EU corn," explained Mason, adding that companies unable to use alternatives have been fighting to secure supplies.

 

"Looking forward to 2004, the key issue is whether the world can expect a repeat performance," said Mason. Although the economist maintains that it is 'statistically unlikely' the burning hot weather conditions seen in 2003 will occur in 2004, Mason confirmed that up until the July and August harvests, the markets and corn players, notably the food and feed industries, will be nervous. Plantings in the mid-West of the US are happening now. We will all be closely watching the weather conditions as the crops grow, he added, saying that the number one corn supplier produces 250 million tonnes a year.

 

Although corn is used more extensively in non-European countries as a feed for animals, this year the EU-15 bloc is tipped to use about 33 million tones for animal feed and about 8-9 tonnes in the human and industrial sector.

 

In the US, since the 1970s and the development of new technologies, the raw material is now the source of the popular sweetener high fructose corn syrup (HFCS) - commonly known as isoglucose in the EU, a key ingredient used by soft drinks manufacturers in North America and Mexico.

 

US suppliers of HFCS, such as starch and sweetener supplier Corn Products International, are currently in bilateral trade negotiations with the Mexican government in a bid to end the Mexican government's tax on beverages sweetened with HFCS.

 

"Representatives of the corn and sugar industries continue to meet with the Mexican government but the big issues are still on the table. A situation that is frustrating," a spokesperson for Corn Products International told FoodNavigator.com.The supplier of HFCS reported a net profit of $25.7 million for the quarter, up from $13.6 million for the same period last year. The firm warned it faced the impact of rising corn prices expected in 2004.

 

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