March 18, 2013

 

 

Saudi Arabia has opened new export channels for wheat exporters, such as France and the US, by including soft wheat in its tenders for the first time, earlier in March 2013.

 

Higher-protein hard wheat, which Saudi Arabia uses for its traditional flat bread, will continue to make up the bulk of the Kingdom's purchases of the food staple, but the gradual adoption of soft wheat will attract a wider range of origins, traders said.

 

Import-dependent Middle Eastern markets are highly prized by major wheat producers and uncertainties over key wheat importer, Egypt, could make Saudi Arabia purchase a larger priority for exporters.

 

"If Saudi Arabia shows a dedication to stay with the soft wheat in the years ahead, it does change the export market mix a little, especially with the absence of Egypt in the market here lately," Shawn McCambridge, grain analyst with Jefferies Bache Commodities, said.

 

Saudi Arabia, which has steadily increased wheat imports since abandoning a self-sufficiency policy in 2008 in order to safeguard its water reserves, made a first-ever tender purchase of soft wheat this month, buying 110,000 tonnes alongside 465,000 tonnes of hard wheat.

 

The state buyer, Grains and Silos Flour Management Organisation (GSFMO), was considering soft wheat to meet demand for biscuits and other sweet foods. A GSFMO official said it would continue to buy soft wheat this week.

 

In the current 2012/13 marketing year, Saudi Arabia will import 1.96 million tonnes of wheat for consumption, a level expected to rise to 2.2 million tonnes, according USDA estimates.

 

Wheat imports should rise further as the country aims to close its domestic production by 2016. The country is also set to import more wheat and other grains for use in animal feed, as it seeks to become less reliant on barley imports and phase out local forage grain crops.

 

A handful of countries including Australia, Canada, Germany and the US have supplied Saudi Arabia with hard wheat in recent years, and varieties like US Soft Red Winter (SRW) and French soft wheat, heavily sold to other importers such as Egypt and Algeria, could now get a foothold in Saudi Arabia.

 

US SRW would appear best placed in the short term to claim such soft wheat sales given its current low prices.

 

"It's encouraging because SRW should be really competitive on price," a US export trader said. "But Saudi specs on quality might be an obstacle."

 

Russia and Ukraine, among the world's cheapest wheat exporters in recent years, could also enter Saudi Arabia's wheat market, although their erratic supply levels may limit such moves, analysts said.

 

French traders and analysts are hoping that Saudi Arabia's change of policy will allow them to extend beyond traditional export zone in North and sub-Saharan Africa.

 

"It's an interesting development that could create an outlet for French wheat," Michel Ferret, head of grain markets at French farm agency, FranceAgriMer, said.

 

In addition to tapping into a demand for soft wheat to produce food, the French export trade is also attempting to convince the Saudis the possibility of making basic bread with lower-protein wheat, French traders said.

 

However, exporters stressed that the new market for soft wheat would grow only gradually, over a long period.

 

"It's premature to say they are going to keep raising (soft wheat) volumes," a French trader said. "It's a test phase."

 

The Kingdom could also afford continual purchases of more costly hard wheat, other traders noted.

 

"The Saudis are not under pressure to save money on wheat imports and can spend more to get the quality they want," a German trader said.