February 2, 2011

 

International traders turn to Australian feed wheat 

 

 

Australia-based global traders, on anticipation of rising demand from animal feed makers, have grabbed up to two million tonnes of feed wheat from farmers amid increasing global grain prices.

 

Supplies of feed wheat from Australia could offset to some extent tight stocks of corn, a key animal feed ingredient, and give breather to importers from Asia to Middle East and Europe, suffering from rising food inflation.

 

Australia, which typically produces only four million tonnes of feed wheat a year mainly for domestic consumption, is likely to see around half of its 2011 crop of 22-26 million tonnes reduced to poor quality, after unseasonal rains and floods damaged crops just when farmers were gearing up for harvest in December.

 

"If you look at what is happening to corn and feed prices, there is strong interest in Australian feed wheat," said one Singapore-based trading manager with an international trading company.

 

The benchmark Chicago Board of Trade wheat rose 5.9% in January, while corn climbed nearly 5%. This is on top of around 50% rise in corn and wheat prices in 2010.

 

Although there have not been many export deals, Chinese buyers were one of the first to take three cargoes or about 150,000 tonnes last month.

 

Another trader said Chinese buyers were negotiating to take between 150,000 and 200,000 tonnes of more feed wheat from Australia and there was some interest from the Philippines.

 

China's state-owned grains trader COFCO Co Ltd last month bought three cargoes totalling about 150,000 tonnes, priced at US$260 per tonne FOB.

 

There was talk that China may now have bought a total of 6-8 cargoes of feed wheat, including the three reported earlier. But deals could not be confirmed.

 

"Financially, buying feed wheat makes sense, Australian feed wheat landed in China could be between US$295 and US$300 a tonne," said one Sydney-based grains analyst. "Grain exporters are buying everything they can because Australian feed grade wheat is the cheapest in the world."

 

Last month, talk of a much larger feed wheat deal, 500,000 tonnes to China, sent CBOT corn futures down 2.8% as traders feared the wheat could replace corn, which China has begun importing.

 

US corn prices will slip this year but stay relatively high after surging 52% in 2010, supported at just below US$6 a bushel by the slow process of refilling near record-low inventories amid tough competition with other crops, according to a poll.

 

A spokesman for AWB Ltd, one of Australia's top grain exporters now owned by Canada's Agrium Inc, said there were strong expectations of more feed wheat sales to China which is finding it a cheaper livestock feed source than US corn.

 

"We're making sales and taking in as much feed wheat as we can," the spokesman said.

 

In a weekly report published on Tuesday (Feb 1), AWB General Manager Commodities, Mitch Morison, said demand was strong for feed wheat, which is why AWB was keeping its wheat pool for feed grades open in New South Wales, Victoria and South Australia states.