Feed buyers mull switch as Ukraine’s corn price butts against wheat

Corn prices in Ukraine have reached parity with feed wheat prices, raising the potential for further increases in regional corn prices to be capped as buyers mull a switch in their feed choices, market sources said Tuesday.

“There is a logic – if it is possible to switch to feed wheat from corn this is more advantageous than to switch with 11.5% wheat,” one market source said.

The move comes as Black Sea prices have become compressed, with prices for feed wheat – typically wheat of 10.5% protein or lower – corn and higher 11.5% protein wheat all converging towards each other.

Black Sea market sources saw bids for 10.5% Russian wheat at $193/mt, basis Kavkaz for 55,000 mt loading in April, while offers for 30,000 mt of Ukraine corn, basis Mykolaiv for 30,000 mt April loading were heard at $195/mt

Russian 11.5% wheat was also heard bid at $197/mt, also for April loading.

“$193/mt for feed wheat [puts it] at the same price as corn [and] makes it more attractive as it has more protein, 10-10.5% instead of 7-8% for corn,” a second trading source said.

A shortage of feed wheat and barley has seen prices converge with feed wheat indications reaching near parity with 12.5% in the later stage of 2017.

The tightness in feed wheat came as Russia pushed out a massive wheat crop, with 12.5% protein values coming down as feed wheat prices moved up.

Corn emerged as the cheapest feed option, but bad weather in South America and a firmer tone across the big three grains and oilseeds through the early part of 2018 has seen prices surging across the board.

Ukraine’s corn farmers have been in a strong position, leveraging their storage capacity to keep their corn in store through the worst of the low prices and courting China buyers as they pick up volumes through late 2017 and early 2018.

While China’s overall corn buying from Ukraine has slowed versus previous years, the qualities and volumes sought by China’s buyers typically come at a premium of $3-5/mt over regular Ukraine handy-sized exports, with bids tempted higher as sellers hold on to their crop.

Corn-servative buyers

However, the switch may not be as simple as pure economics, with some buyers reluctant to upset their buying patterns or risk a knock-on impact for herds, while feed wheat itself remains in short supply.

“Yes, it is narrowing but there is almost no feed wheat left in Ukraine since 98% of it has already been exported,” a third market source said, citing strong barley prices as an example of the conservative nature of some feed buyers.

“It is not actually a substitute for corn… last season we didn’t see any switch from barley to 12.5% wheat despite it being cheaper to feed milling wheat than to buy barley. Some consumers are very conservative and are ready to pay the price,” the source said, pointing at Saudi Arabia as an example.

The country has secured over a $1 billion of barley in recent weeks.