* Corn more than $1 a bu higher than feed wheat in South
* Strong SRW basis amid big CBOT wheat premiums, harvest
By Christine Stebbins
CHICAGO, June 10 A red-hot corn market is
spilling over to wheat, especially in the southeastern U.S.
where hog and poultry producers are scrambling to cover their
feed needs through the summer, grain traders said on Friday.
"What we are finding is that they want and need wheat,"
said Roy Huckabay, an analyst with The Linn Group in Chicago.
"They are feeding wheat. They are going to feed a lot of it."
Corn, which promotes the best weight gains, is the usual
basic ration for most livestock. But wheat, especially lower
proteins like the soft red winter wheat grown in the southeast,
is often substituted when the price is right, like it is now.
The demand is reflected in the unusually strong soft red
wheat cash market in the Southeast, where spot bids are
spiraling higher despite the onset of harvest, a time when cash
bids typically slip as fresh supplies move into markets.
Spot SRW cash wheat prices in North Carolina -- home to big
poultry and hog operations owned by Sanderson Farms (SAFM.O),
Tyson (TSN.N) and Perdue's contracted chicken producers -- late
this week wheat averaged $7.10 a bushel, compared with corn
selling for $8.40 at feed mills. Two weeks ago, corn was at
$7.85 and wheat about $7.25.
SRW wheat, mostly used to make snack foods, typically runs
at least $1 higher than corn, a much bigger grain crop.
"North Carolina doesn't have any corn. So basically they
are doubling the amount of feed wheat they were planning on
buying -- that's why they're not backing off," said one North
Carolina grain merchant who sources feed for local feeders.
"They have not backed off one iota. They are buying wheat
at 105 (cents) over July corn," added the merchant.
Spot corn futures Cc1 hit an all-time high in the spot
contract of $7.93 and an unusual 40-cent premium to wheat after
the U.S. Agriculture Department on Thursday issued its latest
crop report, repeating its forecast for the U.S. corn supply to
fall to 15-year low by the end of current marketing year on
Corn futures hit a record for a second straight day on
Friday at $7.99-3/4.
Next year is also looking uncertain since it appears U.S.
farmers will not get as much corn planted as they intended due
to spring flooding in the central U.S. while corn in the deep
South is burning up amid little to no rain in the past month.
If that wasn't enough, add in big premiums offered in the
Chicago Board of Trade soft red wheat market making it
profitable to buy wheat and hold, or "carry," it for months.
CME Group Inc's (CME.O) variable storage rate scheme to
improve its Chicago Board of Trade wheat contract of raising
storage fees has put the storage fee at 20 cents a bushel a
month, up from about a nickel a year ago.
"Feed buyers still have the $1 carry in SRW to December
futures to contend with. Basis has to be high enough to keep
that wheat from going into storage in the country to earn the
VSR return. But the wheat/corn discount does help," said Diana
Klemme, vice president with Grain Services Corp in Atlanta.
Huckabay added: "It just all comes back that there is so
much carry-in (wheat) futures that everybody wants to buy and
sell it for something next year or next month."
Chicago July/July 2011 wheat/corn spread
Chicago July/Dec 2011 SRW wheat spread
"GET RID OF OLD WHEAT, STORE THE NEW"
The CME is getting ready to make another change to its
wheat contract that is affecting the cash market. Starting with
its September contract, delivered wheat testing 3 parts per
million with vomitoxin -- a common toxin in wheat caused by a
fungal disease -- will be discounted 12 cents a bushel.
"As long as those guys can buy the wheat at some kind of
equilibrium or discount to corn, they are buying wheat," said
one veteran CBOT wheat broker referring to eastern poultry
producers. "Corn out there is ridiculous."
It will be months before the fresh corn supplies move into
U.S. grain elevators. But the soft red winter wheat harvest is
well under way in the South and moving north. Early harvest
reports indicate good quality wheat, traders said.
"They also can feed vomitoxin wheat that is somewhere up to
3 or 4 or 5 parts per million to chickens and turkeys, to the
extent that there's any of that around," the broker said.
"And we are changing the deliverable spec -- it makes a lot
of sense for anybody that's got that stuff to go ahead and sell
it and get rid of it. Get rid of old wheat, store the new
wheat, and start over."
(Reporting by Christine Stebbins, graphics by Gavin Maguire,
additional reporting by Bob Burgdorfer; Editing by Marguerita