April 12, 2011
 

US corn deficit may be filled by wheat imports

 

 

Wheat imported from Australia and Europe, instead of locally grown grain, may make up for the deficit in American corn inventories, an analyst said on Monday (Apr 11), as investors continued to ponder over contentious US crop data.

 

The USDA on Friday (Apr 8) shocked markets by maintaining its approximation for local corn supplies at the end of 2010-11 the same at 675 million bushels, in spite of stocks at the halfway point being 170 million bushels short of expectations.

 

The approximation, which suggests local corn use falling from a record 7.2 billion bushels in the first half of 2010-11 to 4.4 billion bushels in the second half showed a prediction that livestock farmers will, facing record corn prices, convert to using US soft red winter wheat in feed rations instead.

 

However, while admitting there might be some US replacement of corn in future, an analyst also raised doubts over the extent to which US wheat would fill the hole.

 

"I am sceptical that feed use of soft red winter wheat will be much higher than in any normal year," an analyst said. "This might be an opportunity to import feed wheat, even possibly from Europe and Australia, besides Canada. Every year a little bit of wheat lands in the US south east. It should be higher this year than normal because of the problem in the US feed balance sheet."

 

America's wheat imports have increased over the past 30 years, reaching a record 3.5 million tonnes two seasons ago, as many farmers have chosen to plant other crops instead, though the country is still very much a net exporter of the grain.

 

The analyst's statement was based on the enticement that futures prices are giving to producers and merchants to keep hold of soft red winter wheat, the kind bought and sold in Chicago.
 

Wheat for December was trading above US$8.90 a bushel on Monday (Apr 11), almost US$1 a bushel more expensive than for delivery next month. Wheat for delivery early next year was worth much more than US$9 a bushel.

 

This level of so-called carry reflects partly a sliding scale of storage rates introduced last year to marry futures prices at expiry closer to cash levels was incentivising holders of soft red winter wheat to wait out instead of sell wheat into the market as feed.

 

Separately, Rabobank analysts said, "It is unlikely that much of the soft red winter wheat will go into feed channels as elevators are reluctant to sell, given the strong variable storage rates."

 

Rabobank also said that corn prices are still expected to outperform even after the report, and possibly hit parity with wheat in Chicago for the first time since 1996.

 

Kansas-traded hard red winter wheat would, due to the poor condition of the US crop, continue to enjoy, and may raise, its premium over its Chicago counterpart, an advantage which has hit a record US$1.50 a bushel.

 

However, Goldman Sachs stated that the possibility for higher demand of soft red winter wheat will probably weigh on the Kansas versus Chicago price difference.