August 24, 2010

 

Asia feed wheat sellers suggest buyers switch deals to corn

 

 

Due to defaults by wheat exporters in the Black Sea region, global trading companies supplying feed wheat to Asian countries have suggested that buyers swap at least some of their purchases with corn.

 

Importers are reluctant to accept the offers because of the low prices at which they contracted imports of feed wheat two months ago, and are trying to get the original deals executed, they said.

 

A surge in wheat prices in the last two months due to drought in the Black Sea region has disturbed the Asian wheat flow and traders are trying to grab any grain that is available. Suppliers are sourcing wheat from central Europe but fears that supply may run out have prompted initiatives for swaps with corn.

 

Contracts for the supply of around one million tonnes of optional-origin feed wheat in Asia, which was to be secured mostly from Ukraine and Russia, are due to be executed over the next few months.

 

"Some of the contracts have been washed out, others have been postponed and a shift in origin is being worked out, while in some cases suppliers are trying to get them converted into corn supply deals," a Singapore-based grain trader said.

 

He said substitution of feed wheat for corn will vary depending on the destination country and the sector in which the cargo is to be used.

 

Buyers in Southeast Asia purchased feed wheat on a delivered basis for US$190-US$$200/tonne in June, but prices are now more than 50% higher and there are few offers. Corn is being now offered around US$270/tonne, cost and freight.

 

Compound feed manufacturers use different formulations to prepare feed diet in aquaculture, cattle, poultry and hog sectors. Quantity for wheat, corn and soymeal vary in each sector.

 

In aquaculture and poultry, some feed manufacturers are not willing to reduce the ratio of wheat use in a big way but there is possibility to slash use in hogs, said one trader familiar with the deals.

 

Wheat use cannot be done away with altogether in the feed industry but there is definitely a scope to reduce its requirement because of the surge in prices, said a Seoul-based importer.

 

He said wheat is favoured for feed purpose if it is at a US$20-US$25/tonne discount to corn, but it is now at a US$30-US$35 premium.

 

South Korea had purchased more than 700,000 tonnes optional origin feed wheat for July-October shipment and is now vulnerable to erratic deliveries as most supplies were due to come from the Black Sea area.

 

Analysts said to lock in supplies several months in advance can prove futile if actual delivery does not take place or is delayed. Suppliers are now trying to secure wheat from Rumania, Bulgaria and Moldova to offset defaults from the Black Sea. Sellers to Vietnam and the Philippines, two major importers of Ukrainian wheat, are also switching origins.