June 13, 2011

 

Chinese feed mills turning to cheaper wheat from corn
 

 

China's feed mills are using more cheap wheat as a substitute for corn, with wheat prices now 9.3% below corn as the wheat harvest nears, traders said Friday (Jun 10).

 

Physical wheat in most of China's northern areas was more than RMB200 (US$31) per tonne cheaper than corn, enough to attract feed mills, and the price gap is likely to expand further after large quantities of new wheat hit the market, they said.

 

Chinese farmers have finished harvesting half their wheat crop this week and the government has said it expects a bumper harvest.

 

"Feed mills are already using more wheat in feed rations and now with the big price gap, more are encouraged to shift to wheat," said one industry analyst with the China National Grains and Oils Information Centre (CNGOIC).

 

The corn-wheat spread was the largest since 2007, when corn was RMB350 (US$54)/tonne higher, triggering Beijing to restrict the expansion of the booming corn processing industry and ban expansion of ethanol production.

 

"We have now substituted 30% of corn with wheat in our feed rations," said one official with a leading feed mill in Shandong, the country's top poultry breeding province.

 

In 2007 some 13 million tonnes of wheat was used to substitute corn and this year the volume will be higher due to China's rising animal feed production, said the CNGOIC analyst.

 

A large volume of substitution could help ease record Chinese corn prices. US corn hit an all-time high on Thursday as rain delays to seeding triggered concerns of fewer supplies in the world's top exporter.

 

China, the world's second-largest corn consumer, imported one million tonnes of corn from the US in March to help replenish low state reserves, but imports were limited by tight US corn supplies and higher prices.

 

Beijing has been releasing state corn and feed wheat reserves to help cover the deficit. By this week, the government had sold a total of 740,325 tonnes of feed wheat and it has sold altogether 28.4 million tonnes of corn since April last year.

 

Excessive rains coupled with low temperatures in China's northeast corn belt have triggered concerns over this year's corn harvest, although farmers have replanted some of the crop with seedlings damaged by rains.

 

"In both Heilongjiang and Jilin provinces, emergence is behind normal levels due to rainy weather and low temperatures. The team also observed that germination was spotty in some locations with skipped spaces and an occurrence of hand replanting," said the US Grains Council.

 

The council has recently visited the provinces and said China's corn planting acreage was expected to "increase marginally as farmers experienced good prices in 2010 with increased demand."

 

Besides a large acreage and lower emergence, findings by a crop tour organised by the Dalian Commodity Exchange also showed planting costs for corn farmers in parts of Liaoning province have increased by 15% to 20% this year.

 

Farmers in some areas in drought-hit central provinces, where drought had hit plantings of early season rice, have also shifted to grow corn, said the CNGOIC analyst.

 

Like in 2007, Beijing moved again to try to limit use of corn by processors to ensure supplies for feed mills. Demand by processors has been underestimated by the government and the industry was blamed for rising corn prices and tight supplies.

 

The State Grain Administration this week announced a nationwide investigation into industry capacity expansion and corn consumption after taking a series of measures in April to curb industry demand.

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