January 21, 2011

China purchases 150,000 tonnes of Australian feed wheat

China's state-owned grains trader, COFCO Co Ltd, has purchased three cargoes of Australian feed wheat for March and April, according to a Chinese feedmill and trade informant on Thursday (Jan 20).

The cargoes, totalling about 150,000 tonnes, were priced at US$260 per tonne freight on board (FOB), they said.

On Wednesday (Jan 19), talk of a much larger feed wheat deal, 500,000 tonnes, sent Chicago Board of Trade corn futures down 2.8% as traders feared the wheat could replace corn, which China has begun importing in large quantities.

The feedmill source said COFCO planned to sell the feed wheat to mills in the south of China. Feed mills have not received any wheat import quotas and it was unclear if COFCO was using private or government quotas for the purchase.

China has had an annual wheat import quota of 9.64 million tonnes since the country joined the World Trade Organisation in 2001. Only 10% of the quota goes to private flour mills, which largely import milling wheat.

In 2010, China imported 1.23 million tonnes of wheat, 36% more than in 2009, which saw a big shift from net exports the previous year. China normally imports to meet demand for high quality bread and cakes at the top end of the market, but it is under no pressure to import because it holds large reserves.

Australia, the world's fourth-largest wheat exporter, is expected to have ample supplies of feed-grade wheat after torrential rains and flooding in recent weeks downgraded the quality of much of its latest wheat harvest.

"More imports much depend on prices. If prices are competitive and domestic clients can accept the price, we believe more imports could happen," said a trading executive with COFCO.

China's major wheat producing areas are undergoing a serious drought, and a foreign trading house estimated last week that the drought may reduce wheat output by 1.5 million tonnes if it lasts until March.

The feed wheat, with freight and import duty, was about RMB1,900 (US$288) per tonne, which was more attractive than corn offered at RMB2,200 (US$334) per tonne in some provinces in the south, feedmill officials said.