India's corn exports could plummet by around 40 percent in the next marketing year, with buyers turning to cheaper supplies from South America after a rain-damaged crop pushed up Indian prices and shook confidence in the grain.

India's winter-planted corn was hit by untimely rains during harvest across its eastern crop belt in May, prompting key buyers in Southeast Asia to shift to imports from Argentina and Brazil, which have been aggressively marketing bumper crops.

The setback to Indian shipments comes as global corn stockpiles are set to rebound in 2013/14 after three years of tight supplies. Importers are getting choosy as benchmark U.S. futures hover around their lowest in three years and producers rush to sell their crops.

"It's a double-whammy, Indian corn is overpriced and consumers for the time being have lost confidence in it because of quality issues," said a Singapore-based trader who sells feed grain in Asia.

"Where can India sell its corn right now? In my opinion nowhere."

Corn exports from Asia's top supplier could drop to under 3 million tonnes in the year to October, 2014 from 4.8 million tonnes in 2012/13, traders said. That is a far steeper decline than the 27-percent fall in the U.S. Department of Agriculture's (USDA) latest estimate.

Indonesia, Malaysia and Vietnam have already covered most of their demand for the grain until December with cargoes from Argentina and Brazil. They paid between $260 and $280 a tonne, including cost and freight (C&F), for Argentine corn compared with Indian cargoes quoted at $310-$315 a tonne.

Feed millers usually take Indian corn only when it has $10-$15 discount to rival South American cargoes.

And competition is set to heat up with the United States, the world's top exporter, on track for a record harvest and Ukraine offering grain as low as $235 a tonne, C&F, in Asia for November and December shipment.

U.S. new-crop December corn slid to a three-year low this week and has lost almost a quarter of its value in 2013.

Reputational Damage

"Export demand is weak because the quality of Indian produce is not up to the mark," said Neelkanth Thakkar, a trader at grains exporter Vijaya Enterprises in Mumbai, referring to the winter-sown crop.

Although any exports from that harvest would be part of the 2012/13 total, fallout in terms of reputational damage will hit hard in the following crop year, traders said.

India produces two corn crops a year with supplies from the winter-sown variety hitting the market in April and May, and harvest for the summer crop starting in mid-September.

Traders in Singapore said there are large volumes of rain-damaged corn still held up in destination markets as feed millers have been unable to use the moisture-laden grain.

With dwindling exports and expectations of a record harvest later in September and October, India will have a corn glut that is likely to weigh on domestic prices. Some estimated prices would fall 20 percent from $300 a tonne quoted free on board in Mumbai.

India is estimated to produce an all-time high crop of 22.5 million tonnes in 2013/14, according to the USDA, up marginally from 22.2 million tonnes a year ago.

But even with lower prices after October, Indian corn exports will continue to struggle, traders said. It will not be able to sell much in its peak marketing months of November and December as buyers have already covered supplies.

In order to reach total exports of 3 million tonnes in 2013/14 it needs to ship 300,000 tonnes a month, which is unlikely as the bigger global surplus means more competition.

"There are going to be a whole lot of restrictions imposed on Indian corn even if it is cheaper," the Singapore trader said. "Quality issues are going to make it difficult to trade Indian corn."

Poultry and meat producers, who suffered due to record grain prices last year, are hoping to benefit as the cost of raising animals drops.

"The cost of production in poultry could drop by around 5 percent," said Sanjeev Chintawar, business manager at the National Egg Coordination Committee in the southern city of Hyderabad.