February 20, 2010

 

Asia Grain Outlook on Friday: Wheat under pressure from ample supply

 

 

Global wheat prices are likely to remain under pressure due to large stockpiles in major growing countries, trading executives and analysts said Friday.

 

Major exporters including Russia, France, Ukraine and Canada are aggressively lowering their prices to get rid of excess stocks, and the cash market is already at multi-year lows.

 

Ukraine's feed wheat is now being offered at US$125-US$130/tonne for Asian destinations, free-on-board, an executive at a physical grains brokerage said.

 

To make the problem of plenty worse, India and Pakistan have emerged as potential exporters later this year if the monsoon rains are normal.

 

On Thursday, Egypt bought Russian and French wheat around US$170/tonne, down from US$186.5/tonne for Russian wheat last month.

 

Egypt is world's largest importer of wheat and its tender results are considered a barometer for world prices.

 

In private deals, Russian wheat is being offered even lower for Asian destinations at US$160/tonne, free-on-board.

 

Futures prices haven't kept pace with fall in the cash market rates, so there is still downward potential, said Scott Briggs, Agricultural Commodities Strategist with ANZ Banking Group.

 

Chicago Board of Trade wheat futures may fall soon to around US$4.0-US$4.25 a bushel from Thursday's close at US$4.85/bushel, he said. Around 0900 GMT, CBOT March wheat was down 6 cents at US$4.79/bushel.

 

Some traders expect prices to fall even further--below US$4.0/bushel--in the next few months, if the U.S. has to remain competitive in the global wheat market.

 

Wheat buying in Asia was slow this week due to market closures for Lunar New Year holidays in several countries.

 

India's wheat harvest has started in the western province of Gujarat. It is expected to gather pace in the central and western provinces of Madhya Pradesh, Maharashtra and Rajasthan starting next month.

 

Production is forecast at a near-record of at least 80 million tonnes, but some mills in south India continue to make small purchases of Australian prime wheat to take advantage of lower international prices.

 

Tuesday, deals were struck at US$285/tonne, basis cost and freight for containerized shipment in February, down from US$305/tonne in November.

 

It is currently risky to make import purchases for March shipments, which will be delivered in April because local prices may fall once harvest in north India gathers steam.