February 9, 2012

Spain seeks US wheat amid higher EU prices

US wheat sellers are shipping to Spain after increased European wheat prices made them the cheaper alternative.

Buyers in Spain, the EU's top wheat importer, have purchased, according to Reuters, a total of 200,000 tonnes of wheat from the US, mainly of feed quality.

In the US, broker Benson Quinn Commodities clocked talk overnight "that a couple cargos of corn and wheat that were to load out of Black Sea and Baltic Sea have been switched to US origin".

Talks of Spain's transatlantic purchases come even as Glencore's UK grain arm is preparing next week to send wheat to Wilmington on America's east coast, having sent a 49,000-tonne load last week too, in deals struck last year when wheat market arbitrage made European grain competitive in the US.

"It's crazy. To think we are taking wheat across the Atlantic when it could really just be diverted to Spain," a UK grain trader told Agrimoney.com.

Spanish buyers, who also purchased from Brazil last month, have been forced into short-term cover after orders from the Black Sea were scuppered by transport hold-ups caused by the cold snap, which has brought temperatures below -30 degrees to some parts of the former Soviet Union.

Russia's grain exports slowed to 1.4 million tonnes last month, down more than one-half on December, "mainly due to logistical issues linked to the cold wave", consultancy Agritel said.

And, according to Moscow-based SovEcon, grain exports will "remain flat in February due to bad weather in deep water Black Sea ports and in the Azov Sea's shallow water ports".

Russia's main grain port, Novorossiisk on the Black Sea, halted grain shipments on Monday (Feb 6), but was hoping to resume them later on Wednesday (Feb 8).

The turn to the US has been encouraged by the cheaper prices for soft red winter wheat, the type traded in Chicago, compared with European values, which have been elevated by the impact of cold in challenging the region's own logistics, and provoking concerns for winterkill.

Standard Chartered on Wednesday warned that the freeze would "have a tangible impact on European wheat yields".

Martell Crop Projections, saying that even hardened wheat could succumb to temperatures below about -20-22 degrees Celsius, warned that conditions in northern Poland were "nearing that threshold, without much snow for insulation".

And eastern European crops left poorly developed by a dry autumn were more likely to "succumb to bitter cold".

The impact on markets has been to leave US wheat, at about US$274 a tonne, below a world price of US$280-290 a tonne, according to US Commodities.

On futures markets, "historic premiums of Paris wheat versus Chicago in the front end are now starting to price France even further out of export grids", Scott Briggs at Australia & New Zealand Bank said.

The premium of Paris's March wheat contract, over Chicago's, reached about US$40 a tonne.