August 13, 2012

 

Indian wheat may replace US corn due to cheaper prices

 

 

Due to cheaper prices, drought in the US and strong demand in East Asia, India's wheat is expected to partly fill a critical gap in global corn supply for the rest of the year.

 

Asian importers who expect that supply for feed grains will be extremely tight this year due to the US drought and much lesser Australian feed wheat supply are snapping up cargoes from India.

 

Indian wheat on a delivered basis in East Asia is selling more than US$65/tonne cheaper than US corn. The near-month corn futures on the Chicago Board of Trade are hovering close to record highs around US$8.25/bushel.

 

India this week made its first major sale of wheat from government stocks in several years, selling around 190,000 tonnes to global trading companies, Hamburg-based Alfred C. Toepfer International and Singapore's Starcom Resources.

 

Both buying companies sold Indian origin feed wheat to South Korean millers this week. It was South Korea's first purchase in 12 weeks. These back-to-back deals, buying wheat from India and selling to South Korea clearly shows that India is emerging as an important supplier of feed wheat in the region, said a Singapore-based trading executive.

 

India had earlier announced that it will export two million tonnes of wheat from government inventories to clear up space for the next grain harvests.

 

"World has already factored in this two million tonnes Indian wheat in the global trade balance sheet for feed grains such as corn," TPS Narang, an advisor to New Delhi-based trading company, Emmsons International.

 

Even those companies which were unable to purchase wheat from the government in the recent export tenders are also offering Indian wheat to East Asian buyers.

 

South Korea this week purchased six cargoes of feed wheat totalling 325,000 tonnes between US$322-326/tonne, basis cost and freight for arrival by November, and all supply is likely from India. Sellers include Toepfer, Starcom, Nidera and Glencore International PLC.

 

The Indian government sold wheat for exports around US$296.68/tonne and US$302.50/tonne, free-on-board.

 

"Even after adding a freight of around US$18/tonne for a cargo of 55,000 tonnes, a company can earn at least US$3/tonne in exporting wheat to South Korea from Mundra port where no demurrage is likely," said an exporter in New Delhi.

 

South Korean buyers have refrained from buying Indian corn and wheat in the past due to quality concerns but not anymore. Global grain prices are rising due to extreme weather and buyers are trying very hard to keep costs low, said an importer in Seoul.

 

Last month, the USDA slashed its 2012 corn-output forecast by 12% to 329.45 million tonnes. The forecast is due for revision later Friday (Aug 17). Analysts now believe the actual harvest, to take place in August-September, may fall below 300 million tonnes.

 

In India, unlike corn, rice and soymeal, in which traders expect restrictions to be imposed on exports if the dry weather persists, exports of wheat are expected to continue.

 

"The perception is that government will go ahead with the two-million-tonne wheat exports, whether they go beyond that is a matter of conjecture," said a India-based executive with a commodity brokerage.