August 27, 2004

Asian Grain Buyers May Delay Buying Wheat With Bumper Crop Expected

With strong signs that the world will produce a bumper wheat crop this year, Asian grain buyers may increasingly drag their feet on signing deals. This move aims to put pressure on suppliers to cut prices.

Australia and Canada, two of the world's biggest wheat exporters, are expecting big harvests. In addition, Black Sea grain, for milling and for feed, is being amply offered at extremely competitive prices. This abundance is sufficient to offset a small drop in the US crop, and the growing global supply has closed out any rally attempts in grain futures on the Chicago Board of Trade.

Fearing a further rise in freight rates, which had climbed to record highs earlier this year, many Asian buyers have covered their grain needs for more than the normal three-month period. This has given buyers the upper hand to negotiate for better prices as they can wait for more favourable terms.

"Prices may come down as the harvest improves," said Antonio Moraza, president of Pilmico Foods Corporation, a Philippine flour milling firm. "I don't have a requirement until November."

China, which has suddenly slowed buying after rushing to purchase many cargoes from all three leading suppliers earlier this year, is sending a signal to other Asian buyers that it might be wise to defer going to the market.

China imported 3.46 million tons of wheat in the January-July period, up more than 2,000 percent from the same period last year. Trade officials expect China to import up to 8 million tons of wheat this year.

"It's possible that Chinese buyers may be waiting for lower prices," Mark Samson, US Wheat Associates' vice president for South Asia, told Reuters.

The International Grains Council estimates global wheat output in 2004/05 to rise to 606 million tons-the highest level since 1997-and compared with 554 million in 2003/04.

The United States and Canada were offering cargoes at about $200 a ton, including cost and freight, to Southeast Asia. Australian wheat was offered a couple of dollars cheaper. On the other hand, cargoes from the Black Sea region were offered around $180 a ton C&F.

Indonesia, Malaysia and Pakistan have bought Black Sea milling wheat. Philippines, which has bought Ukrainian feed wheat, is pondering buying milling wheat from that region.