Price, supply factors boost viability of corn-feed wheat substitution in Asia

In view of the tight global corn export supply entering 2023, feed buyers in Asia may soon find a practical solution through the substitution of corn with feed wheat, considering a narrowing feed wheat against corn spread as more exports of Australia's massive bumper wheat crop enter the global market.

Platts CFR Northeast Asia corn prices have persisted above $300/mt levels this year. Since September, only 13% of recorded trades into South Korea closed below $330/mt CFR levels, S&P Global Commodity Insights data showed.

Global corn export supply entering the first quarter of 2023 hardly paints a rosy picture.

Brazil's old-crop corn exports are expected to wind down as the market approaches the first quarter of 2023, to make way for soybean exports. With an incoming soybean bumper crop, there may be some price relief for buyers, as farmers may be pressured to sell their corn more cheaply to manage tightening grain storage capacities.

However, buyers will struggle to find similar scenes in other major corn-exporting nations. Argentina's corn crop outlook is worsening by the day, and the US continues to grapple with logistic issues on the Mississippi River. At the same time, US corn continues to price out price-sensitive buyers in Asian destination markets.

Ukrainian corn would have been an option with harvest underway and considering its usual peak export season of November to April, but buyers could be reluctant to secure cargoes out of the Black Sea, given the perceived risks associated with execution, sources said.

Sources also indicated that waiting times for boat inspection after leaving Ukrainian waters could exceed a month.

As it stands, feed corn buyers could be left stranded with little option come time for February-April shipments.

Feed wheat-corn spread narrowing

With corn supply in question, wheat becomes an alternative as animal feed.

Since Nov. 1, Platts FOB Kwinana Australia Standard White wheat with no protein guarantee has shed 10% from $350/mt to $315/mt on Dec.1, S&P Global data showed.

On Dec. 1, Thailand Feed Millers' Association, or TFMA, bought a total of 124,000 mt of feed wheat from Australia at $339-$340/mt CFR liner out, $5-$11/mt lower from its last purchases. The volumes were for Australia's new crop shipment in January and June 2023, and sellers included CJ International and Cargill.

In November, the same buyer had booked for March-May 2023 shipments at $345-$350/mt CFR.

On Nov. 23, when TFMA last booked feed wheat, the spread to Asian delivered corn was at $11.50/mt, and the spread has narrowed to $7/mt Dec. 2, S&P Global data showed, following three corn cargos traded into South Korea between $331-$332/mt CFR levels.

"Local [Thai] corn is 12.50 baht/kg ($360/mt). The Bank of Thailand expects a weaker dollar to 33 baht/dollar. It made the feed wheat price attractive," a Bangkok-based trading source said.

"On the spread [between] corn/feed wheat, we see the most flexibility in poultry, both layer and broilers. Swine also, but to a smaller extent," a feed miller in Vietnam noted.

He added that accounting for Vietnam's corn import tax of 2%, they can pivot to feed wheat when prices are at par with corn and include 10% more wheat in formulations.

Australia feed wheat stocks high

Australia may see more demand for feed wheat with its price competitiveness to corn as it reaps another record crop.

With expectations of 34.5 million-36 million mt of wheat and harvest ongoing nationwide, coupled with heavy carry out from last year's record crop, there is plenty of wheat around, sources said.

Harvest, however, is ongoing and expected to take longer. Severe wet conditions, especially on the East Coast, have delayed grain collection and transportation due to water damage to fields, connecting road and rail infrastructure. The wet conditions boosted yields and output but are causing protein levels to degrade.

Farmers are having to confront these challenges with extreme measures, with one farmer having to hire a helicopter to bring grain to storage for testing, a Melbourne-based trading source said.

Although Australia is going to have another large crop, there may be more feed quality grades. Whether all the wheat will get harvested or be accessible for storage and sale will depend on the weather.