May 24, 2012

 

East Asian feed millers may switch to corn from wheat

 

 

As corn is once again trading at a discount after a gap of more than a year, feed millers in East Asia may turn to corn from wheat, trading executives and industry officials said Wednesday (May 23).

 

Around 1026 GMT, the near-month wheat contract for July delivery on the Chicago Board of Trade was trading at US$6.70 a bushel a US$0.71-premium to the corresponding corn contract.

 

About three million tonnes of East Asian feed demand is expected to shift to corn from wheat in the year starting October 1 if US corn production increases 20% to 376 million tonnes, in line with the government's forecast, the traders said.

 

Some traders said the potential shift could be even higher at four million tonnes. For more than a year now, feed millers had maximised the use of wheat in animal rations. But the situation is changing as they start locking in deals for arrival in the October-December quarter.

 

Wheat on a delivered basis is now US$10-15/tonne more expensive than corn. A year ago, US corn was selling at US$80/tonne premium to Australian feed wheat in the cash market.

 

East Asian countries import more than 30 million tonnes of wheat and 37 million tonnes of corn annually, a substantial portion of which goes into animal feed use. Around 50% of animal feed usually comprises of wheat and corn.

 

Corn import deals for September and October shipment are still priced close to feed wheat but for November and December, corn has an edge, said an importer in Seoul. US and Ukrainian corn that is harvested in September and October will be available for shipment in November.

 

On a delivered basis, Brazilian corn is now offered around US$282/tonne, basis cost and freight, compared with optional-origin feed wheat around US$290-292/tonne, C&F, a Singapore-based regional head of a global commodity trader said.

 

Buyers said there is plenty of scope for shifting between the two grains, particularly in the poultry sector.

 

South Korea's feed wheat imports can range between 1.5 million-2.3 million tonnes, depending on prices. Feed corn imports range between 5.7 million-6.5 million tonnes.  Some of the role reversal is already evident in August shipment purchases of South American corn in Southeast Asia.

 

Indonesia has stepped up imports of Indian corn around US$260-265/tonne, C&F. Thailand is substituting feed wheat with local corn and Vietnam is purchasing corn from India and South America.

 

Depleting Australian feed wheat stocks for exports are also causing a switch to corn, traders said.