June 5, 2012

Asia's wheat prices may stay strong on high demand

Due to strong demand and high government-set procurement prices in some of the important growing regions, Asian wheat prices are likely to stay firm this week, trade participants said Monday (June 4).

Every time prices fall on the Chicago Board of Trade, there are inquiries from importers in Asia to check if there is a decline in Australian offers, but they are steady, said a Melbourne-based executive with a global commodity trading company.

He said growers have sold the bulk of their previous crop and exporters have their hands full with shipments lined up through October. The London-based International Grains Council has forecast Australia's wheat inventories by end-September at 9.4 million tonnes, little changed on year and more than double the historical average.

Another trader in Melbourne said that while Australia has a large surplus, it's well spread out across trading companies and growers.

"No one is going to reduce prices to get rid of the surplus simply because there aren't many shipping slots available to export any additional volume," he said.

Australian Standard White wheat with 9% protein and Australian Premium White wheat with 10.5% protein are trading around US$275/tonne and US$280/tonne, free-on-board for shipment in July from the east coast. Australian prices are already on the lower side, and there isn't much scope to slash them further.

India's wheat with 11.5% protein is being offered around US$252/tonne, FOB, and with 12% protein around US$255/tonne. The reduction in Indian prices is mainly due to the weakness of the local currency compared with the US dollar, though high local procurement rates are supportive for prices.

Exporters in Pakistan are facing difficulties in finding buyers because of the cheaper Indian and Australian wheat. Pakistan exported a record 1.5 million tonnes of wheat last year but is unable to make any significant sales this year. The government raised the procurement price this year by PKR100 (US$1.06) to PKR1,050 (US$11.18) per 40 kilogrammes, or PKR26,250 (US$280) per tonne. Wheat is still traded in the open market around PKR950 (US$10.12) per 40 kilogrammes, but even then, exports won't be viable below US$300/tonne, FOB, said a Karachi-based trader.

Last year, Pakistan actively exported around US$305-310/tonne, FOB, because Australia's crop was damaged by heavy rains and high protein milling wheat was much costlier. Demand is also supporting prices. Buyers in Malaysia, Vietnam and Indonesia are regularly making purchases to plug the gaps in their requirements, traders said.

They said Australian wheat is also getting sold in the Middle East and this is helping sustain prices for the time being. The Black Sea and European wheat harvest may weigh on global prices, but the downside is still limited for high quality Australian wheat, traders said.