December 23, 2010

 

Asian buyers substitute corn with Australian wheat

 

 

Asian buyers are snapping up cargoes of low-grade Australian wheat, with most of them replacing corn with wheat as feed grain.

 

For the first time in at least a decade, the bulk of Australian wheat is competing with corn in the grain markets, marking a significant shift in the dynamics of global trade.

 

With physical prices of feed corn rising 20%-25% since June and currently at US$310-US$315/tonne, cost and freight, for delivery into southeast and north Asia, buyers are eager to buy Australian wheat instead of corn.

 

Vietnam recently made purchases of feed-grade Australian wheat around US$295-US$305/tonne, cost and freight, trading executives said.

 

They said sales of several hundred thousand tonnes of Australian wheat for bulk shipment have also been made to Bangladesh and the Philippines.

 

Eastern Australia has had a bumper crop of wheat this year but heavy unseasonal rains at the time of harvest brought down the protein levels in the grain significantly, making it unsuitable for milling.

 

According to analysts, at least half of eastern Australia's ongoing wheat harvest of 20 million-22 million tonnes this year will likely to be of feed grade. This has created a paucity of milling wheat which is weighing on feed wheat prices.

 

Several deals of Australian wheat with 12.5% moisture and 62 kilogrammes-per-hectoliter density to Vietnam have been made for container shipment in January, said an analyst.

 

Feed wheat lost out to corn after a wheat price surge following Russia's ban on grain exports in August. A reversal in trend is taking place now.

 

Low-grade wheat is currently being offered at about US$265/tonne, FOB for bulk shipment next month, and several hundred thousand tonnes have already been sold to Asian destinations, an exporter in Australia said.

South Korea has also expressed interest in low-grade Australian wheat for feed use, but is seeking grain with 72kg/hectoliter density which is higher than current offers, said a Korean trader.

 

Lower density wheat adds to transportation and storage costs.

 

Cheaper feed wheat from Australia is available at a time when corn prices are at a 29-month high on the back of tight supplies, competition among crops to expand acreage, rising crude oil prices and strong demand to make ethanol.

 

The US plans to extend tax incentives for ethanol production by another year and this will increase the fuel demand for corn, said another analyst.

 

The price outlook for corn is bullish due to domestic demand in the US to make ethanol and gains in crude oil prices, said a researcher.

 

The most active March corn futures contract on CBOT may rise to US$6.30 a bushel from the current level of around US$6.05 a bushel, said a third analyst.

 

If corn prices rally further, as is being forecast, traders expect more demand for Australian feed wheat.