June 13, 2012
Threatening to slow Australian wheat exports that have been running at a near-record pace in recent months, Asian grain importers are turning to the US for cheaper milling wheat supply and Indian corn for animal feed.
The region's biggest grain buyers led by Indonesia and Japan are expected to book more US wheat cargoes in the months ahead for milling, giving stiff competition to Australia, the world's second largest wheat exporter.
A higher demand for US wheat in Asia is likely to support Chicago Board of Trade (CBOT) futures while domestic prices in Australia, which is sitting on a record-large wheat stockpile, could come under pressure.
"We would be expecting the pace of Australian wheat exports to perhaps come under a little bit of pressure over the next couple of months, given what local prices are doing relative to those international values," said Luke Mathews, commodities strategist at the Commonwealth Bank of Australia.
Australian wheat stocks at the end of April were at their highest level on record for the month, government data showed, after recent bumper harvests filled silos and despite exports increasing to key Asian markets such as China.
Australian wheat exports are likely to ease to around 1.8 million tonnes in June and face more downward pressure as freshly harvested US grains enter the market, analysts said. Australia sold 2.36 million tonnes of wheat in April, 2.06 million tonnes in March after shipping 2.38 million tonnes in February, which was the highest in at least nine years.
US wheat has lost almost 2% of its value so far this month, on track for a fifth consecutive month of losses amid pressure from a rapid pace of US harvest. Farmers have completed 35% of the US winter wheat harvest, well ahead of the five-year average pace of 9% at this time of the season.
In the physical market, US soft white wheat is quoted around US$280-285 a tonne, including cost and freight, (C&F) compared with US$300 a tonne for Australian standard wheat. Australia's prime hard wheat is being offered around US$390 a tonne on a delivered basis against US$355 a tonne being quoted for US dark northern spring wheat.
The latest blow to Australian wheat came from South Korea, where millers bought 23,800 tonnes of US wheat, taking a combination of spring, hard red winter and soft white varieties of US wheat.
And the Taiwan Flour Millers' Association has issued a tender to purchase 47,050 tonnes of milling wheat sourced from the US. In the feed grain market, the biggest shift is coming in Indonesia, Vietnam and Malaysia, where buyers are aggressively taking Indian corn.
Indonesia bought some 125,000 tonnes of Indian corn in May, according to estimates by traders, as the country resumed imports of the grain. Vietnam is buying around 75,000 tonnes of Indian corn a month. In deals signed in past few weeks feed millers in Vietnam have booked some 50,000 tonnes of Indian corn at around US$248-255 a tonne, C&F.
"Vietnam and Indonesia are taking a larger supply of Indian corn," said one Singapore-based trader. "If we see US$30-40 discount for Indian corn, we could see around 25% substitution in Malaysian business."
Indian traders said they still have more corn to feed the market even towards the end of the marketing year. The country is expected to sell up to 900,000 tonnes in the months ahead after exporting around 2.4 million tonnes this marketing year which started in October.
Given the scenario emerging with US and Indian grain exports, Australian exporters will be forced to cut prices and sell.
"A lot of this grain that is being held in storage will need to be exported, and Australian producers will need to buy market share globally by discounting, especially in Asia against American wheat," Michael Creed, agriculture economist at National Australia Bank said.
