September 25, 2008

South Korea, Asia's second-biggest grain importer, may nearly double feed wheat purchases next year as feed producers seek a cheaper substitute to US corn because of rising costs and slowing demand.
 

Kim Chi Young, purchasing team manager at Korea Feed Association, the country's biggest grain buyer said Wednesday (24 September 2008), that the country may import around 1.2 million tonnes of feed wheat, up 85 percent from 650,000 tonnes this year.

 

Corn rose 50 percent in the past year and reached a record in June. The increase raised costs for companies including Halim Co., South Korea's largest poultry producer, and forced livestock farmers to cut production or abandon their businesses. Commodity costs boosted inflation in the country  to a 10-year high in July.

 

Analysts say more people are seen substituting corn for wheat as corn prices have gone up sharply. The expected jump in Korean wheat demand is likely to add fuel to gains in wheat prices.

 

Wheat prices has fallen 14 percent in the past year as global producers increased planting to take advantage of record prices.

 

Kim said more feed wheat imports are expected next year as farmers suffering from rising costs seek cheaper feed alternatives as they failed to pass costs onto customers in a sluggish economy.

 

Purchases of feed corn by South Korea, the world's third-biggest importer of the grain, are also likely to decline to 7.2 million tonnes next year from 7.7 million tonnes estimated for this year.

 

Kim also said that output of compound feed may be lower next year than an estimated 16.14 million tonnes this year. Prices of compound feed have gained about 40 percent in the past year driven by grain import costs.

 

Korean importers bought feed wheat in May for the first time in about a year as prices declined.

 

Last year, adverse weather reduced exports from wheat producers such as Ukraine, Korea's biggest feed-wheat supplier.

 

Kim said the price premium of corn to feed wheat has remained steady at around US$40 to US$50 a tonne since the purchase in May and if prices were agreeable, Korea Feed Association could import even more feed wheat, exceeding the 1.2 million- tonne projection. Ukraine will be a main source of wheat imports as supply from the country is increasing.

 

Ukraine imposed limits on grain exports recently to try to prevent shortages and dampen local inflation. 

 

The country is expecting its largest grain crop since 1991 and grain shipments are expected to expand more than fivefold to 22 million tonnes.

 

Members of the Korea Feed Association, including CJ Corp, accounts for about 70 percent of the country's feed grain imports. South Korea imports more than 99 percent of its corn and wheat needs.