August 2, 2010

Global wheat shortfall affects Bangladesh

The world wheat market is withering under a drought, and Bangladesh is starting to feel the heat.

Unseasonably hot weather has shrunk production in key wheat-producing countries such as Russia and Kazakhstan. Canada, one of the world's top wheat exporters, reports the lowest amount of cultivated acreage for the grain since 1971.

The result: prices have surged to their highest level in more than a year, jumping 20.5 cents to US$6.16 a bushel. The 3.5% increase sets the price at its highest since June 2009.

Bangladeshi importers usually look for low protein grains. Wheat with 10-10.5% protein content sells at a lower price. But now, they are even finding it hard to book high protein content grain as commodity dealers find it not worthwhile to negotiate prices.

Bangladesh imported some 3.7 million tonnes of wheat last year. The six contracts that were awarded last month were priced at US$214, US$219, US$221, US$238, US$241 and US$265 a tonne. But since international wheat price went up by about US$70 to US$80 in the last 25 days, many of these contracts might be defaulted, according to reports.

Due to severe drought in Russia, Kazakhstan and parts of Ukraine, local importers might declare their contracts force majeure, a clause in contracts that frees parties from liability or obligation when extraordinary events or circumstances beyond the control of the parties, such as war, strike, riot, crime, flooding, earthquake, volcanic eruption, etc prevents them from fulfilling the obligation.

A quick purchase decision by a sub-committee should be in place to avert such price impact on procurement, grain traders point out.

Hot, dry weather in Russia's primary wheat producing region has raised concerns about the country's harvest this year, World-Grain, a prime grain information company, analysts said. The unfavourable weather could end up making Russia an importer of wheat this year, a stark turnaround from a year ago.

Russia and other former soviet republics like Kazakhstan accounted for 20% of the world's wheat exports last year, and so a drastic change in their production severely cuts into global supply.

Reports state that Ukraine's government might limit food grain exports in the second half of the 2010-11 season to avoid domestic shortage in the wake of crop damage.

Frost and drought have destroyed about 1 million hectares of Ukrainian grain crops, and the government said the harvest could fall to 42 million tonnes in 2010, from 46 million in 2009 and 53.3 million in 2008.

Canadian Wheat Board reported that unseeded farmland will be 18% higher than last year's, and production will be no more than 18.5 million tonnes compared to previous projection of 24.5 million tonnes.