S Korean feed buyers demand feed wheat as spread with corn narrows, freight spikes

Singapore — South Korea's Major Feed Group emerged for feed wheat Feb. 18 as the feed wheat-corn price spread narrowed to close to a one-year low but also on fears of freight rates trending even higher in the near term.

The buying consortium booked 55,000 mt of feed wheat at $309.38/mt CFR, plus $1.50/mt second port premium, from ETG for June shipment. Corn for the same shipment period is priced at $295-$300/mt Feb. 18, depending on freight costs, which is causing the most uncertainty.

The group also purchased 68,000 mt of corn Feb. 17 at $295.40/mt CFR for June delivery.

The feed wheat-corn price spread has narrowed from a peak of $34/mt on Aug. 27 to around $13/mt Feb. 18. This has encouraged feed buyers in South Korea to ponder whether it was time to make a switch away from corn and into feed wheat.

"We have not decided to purchase any feed wheat yet, but we are checking continuously and thinking whether to change the feed ration," a feed buyer in South Korea said.

Putting inelastic feed wheat demand aside, feed millers in the country generally switch to feed wheat if the feed wheat-corn price ratio falls below 10%, sources said.

Both wheat and corn prices have rallied to multi-year highs, but the corn price surge has outrun that of wheat due to a tight global corn balance sheet from production declines and persistently strong feed demand from China.

Aggravating the price rally is the unprecedented spike in recent freight rates.

Since Jan. 18, the US PNW to South Korea spot freight for 65,000 mt cargo sizes has risen to $27.17/mt 29.75% from $20.94/mt, while freight from Bahia Blanca to Qingdao rose from 19.65% to $51.75/mt from $43.25/mt.

Freight rates as high as $35/mt were heard from US PNW to Korea for shipments in April and May, one trading source said.

The seasonality in the freight market is effectively out of sync as the Atlantic is short on tonnage in the first quarter since shipowners had booked in trips from the Atlantic to the Pacific, despite lower-than-usual rates.

However, the Brazilian harvest delays, a cold winter driving up coal demand, and the shortened tonnage lists have collided to spike freight all the way across the Atlantic.

At the same time, demand in the Pacific basin is rising, which means one has to pay a ship even more to ballast all the way West.

In Santos, the cargo line-up for soybeans has been put back since mid-January as Brazil's harvest continued to be delayed, which has caused a spike in late March and early April laycan cargo inquiries.

The Santos-to-Qingdao 60,000 mt grains route was assessed at $45.75/mt Feb. 17, a new all-time high.