UPDATE 3-CBOT corn tops wheat for first time in 15 years

Tue Apr 12, 2011 6:30pm EDT

Related Topics

* Corn futures above wheat first time since 1996

* Inversion to encourage more wheat use in feed rations (Adds graphics, background on typical corn/wheat spread, North Carolina cash prices)

By Karl Plume and Julie Ingwersen

CHICAGO, April 12 (Reuters) - Wheat prices fell below corn on Tuesday for the first time in 15 years, opening the door wider for wheat to become fodder for livestock and poultry.

Soft red winter wheat futures briefly traded below corn prices at the Chicago Board of Trade, the pinnacle of corn's climb to record highs this week amid dwindling U.S. supplies.

Analysts said the hog and poultry sectors had begun using some wheat for feed in advance of the futures price parity, and that more wheat could now be added to feed rations. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Graphic on the CBOT wheat/corn spread:

r.reuters.com/hef98r <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Corn typically trades at a discount to wheat of $1 to $1.50 a bushel. At the start of 2011, CBOT corn traded at 77 percent of the price of wheat.

Corn is the largest cash crop in the United States, and U.S. farmers are expected to plant 92.2 million acres (37.3 million hectares) of it this year -- the second-highest acreage since World War Two.

But strong demand for corn from the ethanol, export and livestock markets pushed CBOT corn prices to an all-time high this week amid the tightest stocks since the 1930s.

That rally has made wheat prices competitive against corn in some areas such as the U.S. Southeast, hub of the poultry industry.

"The Southeast is already buying wheat as fast and as furious as they can," said Roy Huckabay with the Linn Group, a Chicago brokerage.

"There is still wheat coming in from Canada too. It started in February and early March," he said, referring to large Canadian feed wheat shipments into the U.S. East Coast. Canada has ample supplies of feed-grade wheat after rains ravaged its crop last year. [ID:nN09289751]

Worries that cold, rainy weather was delaying corn planting in the U.S. Midwest this week suggested supplies could remain tight beyond the summer, when users may be scraping the bottoms of grain bins as they await the next harvest.

Wheat, meanwhile, has struggled to hold recent gains amid dull demand for the soft red winter variety traded in Chicago and as U.S. farmers prepare to harvest the largest SRW crop in three years and the second-largest since 2000.

The spread between CBOT May wheat WK1 and corn CK1 futures inverted on Tuesday at 11:18 a.m. CDT (1618 GMT), with corn trading above wheat for the first time since 1996.

CBOT May wheat settled at $7.59-1/2 per bushel, just 7 cents above May corn at $7.52-1/2.

Corn and wheat futures fell as part of a broad commodity sell-off, but the decline in wheat outpaced that in corn. [GRA/]

CASH WHEAT CHEAPER

Corn in the cash market has already been trading at a premium to cash wheat in some areas of the country.

The U.S. Department of Agriculture reported cash prices on Tuesday for soft red winter wheat delivered to Statesville, North Carolina, at $7.49 a bushel, while corn was quoted at $7.97. AMS019

But despite the price disparity, livestock and poultry producers are normally reluctant to adjust feed rations.

"Pigs don't like variety," said Ron Plain, livestock analyst at the University of Missouri. "As a general rule you will only switch to wheat if you've got enough to feed for a while. I'd say at least a month's worth of feeding.

"You would not want to switch for a week and switch back. The animal performance is likely to cost you more than the savings in price."

Poultry producers also adjust feed rations cautiously.

Tyson (TSN.N), the No. 1 U.S. chicken producer, said it is not currently using wheat in its feed rations, although some may be added this summer after the winter wheat crop is harvested.

No. 4 chicken company Sanderson Farms SAFM.N said it is not currently using much wheat in its rations. (Additional reporting by Mark Weinraub, Bob Burgdorfer; editing by Jeffrey Benkoe and Dale Hudson)

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