March 11, 2011

 

Asian feed wheat demand rises as wheat-corn premium narrows

 

 

Asian buyers are actively securing deals for feed-grade wheat, taking advantage of the narrowing-to multi-year lows-of wheat's premium to corn on the CBOT, trading executives said Thursday (Mar 10).

 

Traders said lower grades of wheat are already replacing expensive corn in Asian markets. Australian feed wheat on a delivered basis in Southeast Asia is US$40-$50 cheaper than US corn shipped from the Gulf coast.

 

The spread between the most-active wheat and corn futures for May delivery on CBOT narrowed to below US$0.60 a bushel overnight compared with US$1.77 in mid-December. Usually the spread is around US$1.50-$1.75 a bushel.

 

Corn is outperforming wheat because its supply is very tight, and spreads between the two are likely to be narrow for the next two or three months, said Paul Deane, an agricultural economist with ANZ Banking Group in Melbourne.

 

Higher crude-oil prices have boosted demand for corn to make ethanol for blending with gasoline, which is likely to keep supply tight until the next US harvest in September. Wheat supply, in contrast, will be augmented with the northern hemisphere harvest starting in May.

 

Wheat will help ease the balance sheet of corn as it gets increasingly substituted in the physical market, Deane said.

 

"There is definitely a shift in animal feed rations towards wheat from corn," said a US corn supplier to Taiwan.

 

Lower-grade Australian wheat is plentiful, providing Asian feed manufacturers with a new grain sourcing option, Deane said.

 

Australia's wheat exports in January surged 40% from December and 26% from a year earlier to 1.75 million tonnes, the highest level in almost two years, according to government data.

 

Australian feed wheat is being offered to Vietnamese buyers for May shipment at US$305-$315/tonne, cost and freight, while US No. 2 corn shipped from the Gulf coast will cost around US$352-$357/tonne.

 

Last week, South Korean buyers arranged to purchase Canadian feed wheat at US$308.50/tonne, C&F, for arrival by end-June. Wheat has also become viable for use as feed in the US.

 

"We are now starting to see some soft red winter wheat trade in the animal feed markets in the eastern US," Jay O'Neil, a senior agricultural economist at Kansas State University, said earlier this week.

 

Since wheat can't totally replace corn in animal feed, some Asian buyers are looking for the grain in South America and India.

 

In Japan, world's largest corn importer, buyers are snapping up cargoes of relatively cheaper Brazilian corn, which is available at a US$15-$20/tonne discount to corn of US origin for shipment in August.

 

Indonesia has purchased around 300,000 tonnes of Indian corn for shipment in March and April, traders said Wednesday. They said Indonesia imported 200,000 tonnes of Indian corn in February. Current offers are US$325-$330/tonne, C&F while earlier trades were US$290-$310/tonne.

 

Unlike the global wheat market, where there are several major exporting countries, the bulk of global corn sales involve US sellers.