May 7, 2012

Asian wheat prices likely to fall on ample supply
 

Due to ample supply in major exporting countries and favourable weather during ongoing planting an ahead of harvest in the US, Asian wheat prices may fall next week, trade participants said Friday (May 4).

The crop size in the EU is below expectations but the overall global supply can meet medium-term needs, they said.

The most active July wheat futures contract on CBOT is currently trading around US$6.19 a bushel and further downside is possible, including a drop below US$6.05 a bushel, traders say.

The contract has fallen 8% since February and hit a six-month low of US$6.15/bushel this week. The US winter wheat crop is developing nicely and conditions are reported to be much improved over last year and close to those of the best years, ANZ Banking Group said in a research note.

The United Nations Food and Agriculture Organisation has cut its forecast for global wheat output in the aggregate 2012-13 marketing year by a significant 15 million tonnes to 675 million tonnes, citing smaller crops in the EU and Ukraine among others.

However, traders in Asia aren't showing concern because ample supply is available from Australia, US and Russia. Australian supply should cover the shortfall even if the northern hemisphere crop fails to meet expectations, a trader in Jakarta said.

Another trader said India is sitting on a large stockpile, part of which can be sold off if prices are competitive. India is exploring the possibility of exporting 10 million tonnes from government stocks to free up storage space, government officials said.

India's government will have to sell its grain below market rates to be competitive, which has political implications, but if it does do so it will drag down global prices even further, the trader in Singapore said.

Bangladesh has purchased 50,000 tonnes of optional-origin wheat via tender from India's LMJ International at US$288.30/tonne, CIF. Taiwan this week bought US Dark Northern Spring, Hard Red Winter and Western White grade wheat at US$382.45/tonne, US$347.73/tonne and US$301.07/tonne, C&F, respectively.

Analysts said expansion of trading hours for wheat on CBOT may be partly aimed at providing greater exposure to traders to the Black Sea futures contract that will be launched in June.

"They probably want to capture more European hours in the daily schedule to enable trading on spreads between CBOT and Black Sea futures," said Avtar Sandu, manager for Asian commodities at Phillip Futures.