April 2, 2012

 

Asia wheat demand may drop as corn prices lower

Feed grade wheat may see lower Asian demand if corn prices keep reducing, narrowing the price gap between the two grains.

 

East Asian buyers are actively seeking corn cargoes to take advantage of the latest fall in prices, traders said Friday (Mar 30). Near-month May corn futures contract on the Chicago Board of Trade is currently trading around US$6.06/bushel, close to its lowest level since January 18.

 

Australian feed wheat's discount to American corn delivered in East Asia, has narrowed to just US$20/tonne from US$80/tonne a year earlier.

 

"If feed wheat becomes more expensive than corn or if both come almost at par to each other, we may reduce our wheat use in animal feed by almost half," said an importer in Seoul.

 

Over the last year and a half, feed producers have been substituting corn with wheat when feed wheat became available in plenty after heavy rains lowered the quality of Australian wheat.

 

Traders are now waiting for latest data on US corn planting to see which way prices are headed. "Corn buying will gather steam if US confirms today an expected large expansion on corn plantings," a Singapore-based grains trader said.

 

Near-month CBOT corn futures may decline in the next US marketing year starting September 1 to US$4.50-US$6.20 a bushel as demand to make ethanol has almost peaked and the next crop may be substantially higher, Dan Basse, president of Chicago-based consultancy, AgResource Co., said at a recent conference.

 

Both September and December CBOT corn futures are already below US$5.50/bushel in anticipation of a large crop and cash prices are under pressure due to the ongoing South American harvest. Argentina's corn crop isn't likely to be as small as was feared earlier, with analysts putting it only marginally lower than the 22 million tonnes earlier estimated.

 

South Korean feedmillers bought South American corn this week at US$299.57/tonne, basis cost and freight--the lowest price they paid in 10 weeks, traders said.

 

The global dependence on US corn is also declining with the emergence of Ukraine as a major supplier, said Nobuyuki Chino, Tokyo-based President of Continental Rice Corporation.

 

The USDA has forecast the country's corn stocks at a multi-year low of 20 million tonnes by end-August but traders are taking it with a pinch of salt after last year's actual number came in at 29 million tonnes despite USDA initially predicting 18 million tonnes.