What is in this article?:
- Tight corn stocks, not quality concerns, pushing wheat as feed
- Corn supplies tight in China
• Generally, a spike in feed use would indicate quality issues, but other market factors are driving the feed wheat use higher than ever this year.
• Driving feed wheat demand is the very tight supply of corn.
Corn supplies tight in China
Tight corn supplies in China, the world’s largest feed grains consumer, have led to the current estimate of 19.5 MMT in feed wheat use this year, nearly doubling the previous record.
USDA also increased projected U.S. feed wheat use by 950,000 MT to 4.90 MMT, 37 percent above the five-year average.
Kim Anderson, agricultural economist at Oklahoma State University, attributed the increase to the tight U.S. corn stocks. Anderson noted that the United States has plenty of wheat available for all uses, but demand dynamics may pull more of this high quality wheat into the feed market.
Looking at the futures market, the spread between wheat and corn has tightened significantly the last few years. Historically, the three major wheat futures markets have held a premium to the Chicago Board of Trade (CBOT) corn price.
However, on multiple days in the last year the CBOT soft red winter (SRW) futures contract closed at a discount to CBOT corn. For example, the CBOT corn contract closed 8 cents higher than the CBOT May SRW contract on Wed. April 11.
Analysts also are watching the spread between CBOT corn and Kansas City Board of Trade’s (KCBT) hard red winter (HRW) contract. To date, KCBT has never closed lower than CBOT corn, but KCBT closed Wednesday with an 8 cent premium to CBOT corn and the spread April has been as low in as 4 cents. The tightening of the price spreads makes wheat a more viable option for feed use.
Even though USDA lowered projected world wheat ending stocks in April by 3.3 MMT to 206 MMT, it will be the fourth largest carryover supply on record and 25 percent greater than the five-year average, if realized.
In the United States, estimated ending stocks would decrease 870,000 MT, an 8 percent decline from last year, but still 22 percent above the five-year average.
The United States continues to have an abundant supply of wheat available at competitive prices to meet the world’s demands.