Starch makers wilt under stalk pressure

Maize prices surge despite higher output, with rising demand abroad; processors try to redo sale contracts.

Starch manufacturers are having a rising problem in maintaining their margins, due to the seemingly unstoppable growth in the price of maize, their prime input.

It is four months since the kharif crop began arriving at the wholesale markets. The estimate for the current year’s crop is 19 per cent more than last year (the maize year is October-September).

Yet, the price of maize is 40 per cent higher than last year, with 60 per cent of that rise having taken place in these four months (see table).

Starch makers have been trying to pass on the cost to their consumers; their prices have risen by 10 per cent in the past two months. A further eight to 10 per cent rise is on the cards, but there is resistance from user industries, such as textiles and pharmaceuticals.

Says Vishal Majithia, managing director, Sahyadri Starch and Industries: “It is impossible to pass on the whole rise in prices to consumers. We are contemplating increasing the price of starch from Rs 23 per kg to Rs 25 per kg.”(Click here for table)

Glucose is another by-product while making starch from maize and is used by the pharma industry. Starch makers usually sign one-year sale contracts, in January, for glucose. In early January, maize prices were Rs 950-1,100 per quintal. Now, these are near to Rs 1,200 a qtl and starch companies are going back to their buyers to renegotiate contracts.

Said an industry source: “We had to absorb up to a 10 per cent hike in maize prices during the contract period. Since prices have gone up by more than that in the first quarter of the contract, we have sent letters to the counter-parties to renegotiate the contracts.”

Increased demand abroad is a key reason why maize is only available at a higher price.

The total (kharif and rabi) crop is expected to be 20 million tonnes in 2010-11, compared with last year’s total of 16.7 mt. However, compared to last year’s 0.7 mt of export, it could be 2.7-2.8 mt this year. Corn (maize is mostly called corn in the developed world) prices in the international market have risen 17 per cent in the past four months and by 90 per cent over the past 12 months.

“Indian corn is possibly the cheapest in the world market on Wednesday,” said Amit Sachdev, Indian representative on the US Grain Council.

Industry sources also say there was some damage to the crop due to late rains, plus diversion for other uses, making less available for industrial use. In sum, the price outlook for maize is bullish for some more months.