April 12, 2011

Asian demand to ease as CBOT corn hits record high
 

Asia's corn demand is expected to ease as prices soar to yet another record high and as buyers step up purchases of feed wheat in its place, trading executives said Monday (Apr 11).

The most active May corn futures contract on the CBOT hit an all-time high of US$7.8375 a bushel during electronic trade Monday.

Physical buyers in Asia are being offered US No. 2 corn on a delivered basis around US$385-$400 a tonne, one of the highest ever.

At current price levels, some thinning of demand is bound to happen, said a Singapore-based executive with a global trading company.

US cash bids need to remain competitive with Australian feed wheat or run the risk of eliminating demand, said Karl Setzer, a US-based analyst with MaxYield Cooperative.

Last week, in physical trade, imported feed wheat on a delivered basis to Southeast Asia was as much as US$80/tonne cheaper than US corn.

The USDA kept unchanged its forecast for the country's closing stocks of corn, and this may have impacted demand for feed use amid rising prices, said a Tokyo-based analyst.

The USDA increased the estimate for ethanol use of corn by 50 million bushels, but lowered that of feed use by an equal amount, which left projections for closing stocks unchanged, said Setzer.

The general perception is that the USDA, in its monthly report Friday, will revise lower its forecast for the country's closing corn stocks at the end of the marketing year on August 31.

In its monthly report in March, the USDA had kept the country's corn closing stocks forecast unchanged at a 15-year low of 17.14 million tonnes and retained it for April too.

High corn prices will push up demand for wheat as a substitute to make animal feed in many Asian countries, said Nobuyuki Chino, president of Tokyo-based commodities trading company Continental.

The USDA has lowered its estimate for closing stocks of wheat among major exporters other than the US by 6% to 27.22 million tonnes. The major exporters are Argentina, Australia, Canada and the EU.

Some of this shift is already taking place, towards Australian feed wheat from US corn, and is likely to gather pace in coming weeks.

Wheat's premium to corn on the CBOT narrowed Friday to its lowest in more than a decade at just US$0.10 a bushel compared with US$1 a bushel a month ago and US$1.77 in mid-December. It is currently around US$0.25 a bushel.

Buyers in Vietnam, the Philippines and Indonesia have already snapped up several hundred thousand tonnes of Australian feed wheat as a substitute for corn in animal feed.

Australia's wheat exports in February rose 3.4% from January to 1.81 million tonnes, 47% higher than last February, the country's statistics bureau said Thursday.

For the first time ever, corn prices may hit a record high of US$8.50-$9.0 a bushel in the next few months, said Chino. Australian feed wheat is at least 20% cheaper than US corn.

In early August last year, when Russia banned grain exports, feed wheat was trading at a US$30-$35/tonne premium to corn, on a delivered basis.