June 11, 2011

 

Asia's record level corn prices to boost wheat demand

 

 

The growing discount feed wheat to corn is seen to advance wheat demand in east Asia as animal feed manufacturers start covering their import requirements for the October-December quarter, trading executives said Friday (Jun 10).

 

Australian feed wheat on a delivered basis in east Asia is currently being offered at a US$90/tonne discount to US corn for August shipment, they added.

 

Even the upcoming US new crop corn for shipment from October onwards is at least US$65/tonne costlier than Australia's and US$40/tonne than Ukraine's feed wheat, on a delivered basis into East Asia.

 

"At current price levels compound feed millers will maximise the use of wheat in their formulations," said a Seoul-based importer.

 

No major corn trade has been reported in East Asia for the last two weeks, he said.

 

Most traders expect an aggregate 5-10% shift in feed millers' usage towards wheat and other ingredients and away from corn this year, though the figures may vary in various animal feed categories in the region.

 

Many industry players also point out that a large part of the expected shift in use is already taking place, because corn has been selling at a premium to wheat in the cash market for several months now.

 

"There is limit beyond which one can't substitute corn with wheat, particularly in the poultry industry, though the scope for such a swap is greater in the cattle and hogs sector," said a Singapore-based executive with a global commodities trading company.

 

While corn is a source of starch, wheat provides more protein in the animal feed, he said.

 

But despite such limitations, importers in Southeast Asia, China and South Korea are trying to optimise the use of wheat.

 

Analysts said the latest US government forecasts, which revised down expectations for corn acreage, output and stocks numbers, indicate that buyers will have to get used to using more wheat on a sustained basis until late 2012.

 

The US lowered its output forecast for the new marketing year that begins September 1 by almost eight million tonnes to 335.3 million tonnes, pushing near-month CBOT July futures to a record high of US$7.93/bushel on Thursday.

 

The US pulled the trigger by cutting acreage under corn, ANZ Banking Group said in a research note.

 

"We haven't seen feed wheat at such an attractive discount to corn before," a Kuala Lumpur-based trading executive said.

 

US corn for August shipment from the Pacific Northwest is now available around US$390-$395/tonne, on a cost-and-freight basis at Asian ports, while Australian feed wheat is offered at US$302-$315/tonne, C&F.

 

In late April, South Korean buyers purchased 275,000 tonnes of feed wheat in the span of just two days at US$293.70-$306.50/tonne, C&F, mostly from Canada and Europe for shipment in the third quarter. They are now seeking more feed wheat cargoes for September-December shipment.

 

In Japan, buyers are reluctant to finalise at current levels the prices of cargoes they purchased earlier on premium basis to futures on the CBOT.

 

In Vietnam, the preference is clearly for feed wheat over corn, but buyers are waiting for firm offers from Ukraine, said a Ho Chi Minh-based trading executive.

 

The Philippines has covered its feed grain import needs through the next few months with purchases of Australian feed wheat earlier this year.

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