June 4, 2011

 

Wheat's premium to corn seen to remain tight in CBOT

 

 

Wheat's premium to corn on the CBOT is likely to remain uncommonly constricted for the next few months, given wheat may even trade at a discount, traders said Friday (Jun 3).

 

Corn's tight supply relative to wheat will ensure that feed wheat prices are substantially lower in the cash market, they said.

 

Australian feed wheat on a delivered basis in east Asia is now offered at a US$60-a-tonne discount to US corn.

 

CBOT July wheat's premium over corn slipped to less than US$0.01 a bushel Wednesday and is now around US$0.10.

 

"The balance sheets for corn and soft wheat [which is traded on CBOT] are at a total contrast from the fundamentals point of view," said Paul Deane, a Melbourne-based agricultural economist with ANZ Banking Group.

 

He said the upcoming bumper crop of soft red winter wheat in the US may keep prices subdued, adding that corn supply may tighten further due to delayed plantings amid heavy rains and floods in the north.

 

Supply of high-protein milling wheat such as Hard Red Winter and Dark Northern Spring is tight. The grades are traded on Kansas City Board of Trade and Minneapolis Grain Exchange.

 

Soft red wheat, which competes directly with corn, is traded on CBOT. Last year, the US produced around 238 million bushels of the grade. Projections for this year will be issued in July.

 

Traders said east Asian demand for imported corn has slowed down considerably in recent weeks due to the latest rally in prices.

 

Early last month, east Asian importers locked in corn purchases from South America and the US at US$330-$342/tonne, basis cost and freight for July and August shipment, but the latest offers are US$370-$375/tonne, C&F.

 

"Delayed corn plantings in the US have pushed up import prices again, making Australian feed wheat much more attractive," said an executive of a Singapore-based global commodities trading company.

 

He said there is more interest in buying feed wheat from Australia and Ukraine. Russia plans to lift a ban on wheat exports from July 1 but it isn't a major player in the east Asian grain market.

 

Ukraine's feed wheat is being offered at US$315-$320/tonne, basis cost and freight for August shipment.

 

US corn for August shipment from Pacific North West is now available around US$375/tonne, C&F at east Asian ports, while Australian feed wheat is offered at US$315/tonne, C&F.

 

US corn prices are now close to those of soft red winter wheat, which will cost east Asian buyers around US$378/tonne, C&F for August shipment.

 

Wheat's premium to corn on CBOT isn't likely to widen significantly for three to four months. On the contrary there will be periods when wheat even trades at a discount, said ANZ's Deane.

 

The premium, which is normally US$1.50-$1.75, has consistently narrowed since December. In April, wheat traded at a discount to corn on CBOT, the first such reversal in 15 years.

 

Global corn trade is dominated by the US, which accounts for more than half of trade, unlike wheat, which has several major producers.