Hallie Gu, Gavin Maguire

BEIJING/SINGAPORE Reuters – Corn prices in China’s Shandong hub, which is the key to China’s economic growth, have fallen this week to the same level as wheat. Some feed producers are now switching back to yellow grains, according to traders and analysts.

For most of last year, corn prices in important animal-feeding centers like Shandong province were trading at an unusual sustained premium to wheat. Because of corn production problems and the drawdown in stock last year, domestic prices reached record levels.

The high cost of corn led to industrial corn consumers looking for other options. Many feedlots have switched to using record quantities of feed-grade grain wheat.

GRAPHIC: Weaker corn prices in China have prompted some feed producers to switch back from wheat – https://fingfx.thomsonreuters.com/gfx/ce/jnvwewxqyvw/ChinaShandongWheatCorn.png

However, as local corn prices continue to fall, wheat’s relative price advantage has almost disappeared.

Li Hongchao from Myagric.com (an agriculture consulting firm) said that “Wheat usage in feed generally is expected to decrease further.” Li explained that prices for the new crop of corn should be lower than those of wheat.

As of Thursday, corn prices in Shandong Province, which is a major livestock hub in Northern China, had fallen 15% from record levels in March and were below those in wheat.

Loyalty is not possible. A purchasing manager at a Northern China livestock producer said that prices are all we care about. He has recently cut the wheat content in his feed product to 5% from 10%.

Manager: “We use more corn because corn prices are falling back,” he said. The manager declined to name himself, as he was not authorized to discuss the matter with the media.

According to data from Shanghai JC Intelligence, wheat prices averaged 350 yuan/tonne lower than that of Shandong corn in 2021. This compares with a 250 yuan premium between 2019 and 2020.

JCI reported this week that corn prices are now at or below wheat’s level and feed producers are starting to reduce wheat usage.

According to JCI, northern China’s wheat use for poultry feed is down from 40% earlier in the year, to 20% by October. In central China, however, its percentage has dropped as high as 40%.

GRAPHIC: Wheat vs corn prices in Shandong, China – https://fingfx.thomsonreuters.com/gfx/ce/xmvjolngypr/WheatvsCornSpreadShandong.png

Southern China’s corn prices have dropped below wheat in recent months, and corn prices in northeastern China are cheaper than local wheat.

The northeast doesn’t have as many wheat farmers. “Unless corn prices rise substantially, producers here will not use much wheat,” stated a buyer manager for a feed manufacturer based in the area.

China is expected to use 36 million tonnes of wheat in feed in the 2021/22 crop year, an analyst at China National Grain & Oils Information Center said in September.

Recent rains delayed harvests in northern China’s parts, raising concern about the quality of crops.

China’s ministry of agriculture has revised its estimates for 2021 corn yield due to the rain damage.

According to the manager of purchasing, “We will assess when corn is available for sale in large quantities.”