April 20, 2011

 

CBOT corn future rises higher than wheat

 

 

CBOT wheat prices were lower than corn on Tuesday (Apr 19) for the first time in 15 years, thus, allowing it to become fodder for livestock and poultry.

 

Soft red winter wheat futures briefly traded below corn prices at the CBOT, the pinnacle of corn's climb to record highs this week amid dwindling US supplies.

 

Analysts said the hog and poultry sectors had begun using some wheat for feed in advance of the futures price parity, and that more wheat could now be added to feed rations.

 

Corn typically trades at a discount to wheat of US$1 to US$1.50 a bushel. At the start of 2011, CBOT corn traded at 77% of the price of wheat.

 

Corn is the largest cash crop in the US, and US farmers are expected to plant 92.2 million acres (37.3 million hectares) of it this year, the second-highest acreage since World War Two.

 

However, strong demand for corn from the ethanol, export and livestock markets pushed CBOT corn prices to an all-time high this week amid the tightest stocks since the 1930s.

 

That rally has made wheat prices competitive against corn in some areas such as the US Southeast, hub of the poultry industry.

 

"The Southeast is already buying wheat as fast and as furious as they can," said an analyst.

 

"There is still wheat coming in from Canada too. It started in February and early March," he said, referring to large Canadian feed wheat shipments into the US East Coast. Canada has ample supplies of feed-grade wheat after rains ravaged its crop last year.

 

Worries that cold, rainy weather was delaying corn planting in the US Midwest this week suggested supplies could remain tight beyond the summer, when users may be scraping the bottoms of grain bins as they await the next harvest.

 

Wheat, meanwhile, has struggled to hold recent gains amid dull demand for the soft red winter variety traded in Chicago and as US farmers prepare to harvest the largest SRW crop in three years and the second-largest since 2000.

 

The spread between CBOT May wheat and corn futures inverted on Tuesday (Apr 19) whereby corn traded above wheat for the first time since 1996.

 

CBOT May wheat settled at US$7.59-1/2 per bushel, just US$0.07 above May corn at US$7.52-1/2.

 

Corn and wheat futures fell as part of a broad commodity sell-off, but the decline in wheat outpaced that in corn.

 

Corn in the cash market has already been trading at a premium to cash wheat in some areas of the country.

 

The USDA reported cash prices on Tuesday for soft red winter wheat delivered to Statesville, North Carolina, at US$7.49 a bushel, while corn was quoted at US$7.97.

 

But despite the price disparity, livestock and poultry producers are normally reluctant to adjust feed rations.

 

"Pigs do not like variety," said another analyst. "As a general rule you will only switch to wheat if you have got enough to feed for a while. I would say at least a month's worth of feeding.

 

"You would not want to switch for a week and switch back. The animal performance is likely to cost you more than the savings in price."

 

Poultry producers also adjust feed rations cautiously.

 

Tyson, the number one US chicken producer, said it is not currently using wheat in its feed rations, although some may be added this summer after the winter wheat crop is harvested

 

Number four chicken company Sanderson Farms said it is not currently using much wheat in its rations.