South Korea buyers step up feed wheat coverage; corn substitution possible

South Korea feed buyers bought four cargoes of up to 250,000 mt Australian feed wheat in the week to Jan. 13, sparking talks that corn substitution may have started amid high US prices and tight global supplies until at least June.

Major Feedmill Group and Feed Leaders Committee extended their Australian feed wheat coverage during the week, with a price range of $344-$346/mt CFR inclusive of second port charge for May shipment, according to market sources.

While South Korean buyers tend not to cover for June arrivals of corn until at least in February, tight corn supply in the first half of the year has begun driving feed wheat substitution. Compared with wheat, indicative offers for corn for June arrivals in South Korea were seen at $345/mt and higher.

South Korea bought 32 feed wheat cargoes amounting to 1.90 million mt in 2022, with an average price of $356.36/mt CFR, according to S&P Global Commodity Insights.

"MFG is buying two more cargoes of feed wheat than usual for Q2 arrivals," said a South Korean trader.

"I believe that [the South Korean feed buyers] are replacing corn. The traded price is cheaper than corn if it were to arrive in June," added another Singapore-based trader.

The tight supply is expected to influence Asian corn fundamentals amid firm US corn basis owing to strong demand domestic and a bearish Argentina production outlook. Supply could experience a relief in the form of a bumper Brazilian crop, but its exports will not hit the market until at least late May.

"As of today, the market is not trading below 44 [million mt production in Argentina]," said a trader, adding that the downside has yet to be seen.

"The world is betting on a big Brazilian Safrinha crop, but keep in mind that nothing has been sown yet," another trader said.

Platts assessed corn CFR North Asia at $339.25/mt Jan. 12 and Australian Standard White Wheat FOB Kwinana at $313.50/mt Jan. 12, according to S&P Global data.

The US Department of Agriculture's latest World Agricultural Supply and Demand Estimates report released Jan. 12 slashed almost 10 million mt off corn production estimates in the US, Brazil and Argentina. Exports out of the US and Argentina for 2022-23 were also cut almost 7 million mt.

The WASDE report sent corn futures on the Chicago Board of Trade rallying over 13 cents/bushel overnight, with the most active March (H) contract settling 15 cents/bu higher at 671 cents/bu Jan. 12.

The USDA lowered global corn ending stocks for 2022-23 again to 296.4 million mt, down 2 million mt.

"Foreign corn ending stocks are down, mostly reflecting reductions for Ukraine, Brazil, Pakistan and Paraguay, with a partly offsetting increase for China," the department said in its monthly report.

In contrast, global wheat ending stocks for 2022-23 were raised 1.1 million mt to 268.4 million mt.

"The 2022/23 global outlook is for increased supplies, exports, consumption, and stocks. World supplies are raised 1.3 million tons to 1,058.1 million on production increases in Ukraine and the EU," the USDA said.