October 29, 2003

 

 

Instability of US' Wheat Prices Due To Speculation of China's Low Wheat Stock

 

U.S. wheat prices seesawed on Monday on swirling market talk of large Chinese purchases amid indications that stocks were running low in the world's most populous country, U.S. grain exporters said.

 

Wheat futures, buoyed by recent small purchases of U.S. wheat by China, gyrated during the day as the talk circulated.

 

Chicago Board of Trade soft red winter (SRW) wheat for December delivery soared nearly 13 cents to a two-month high of $3.82 before falling back on profit-taking to close at $3.67-1/4, down 2 cents. The action was similar in the Kansas City and Minneapolis wheat markets.

 

"It was profit-taking in very light volume," said one wheat trader on the Kansas City trading floor. "Now the market wants to see if any of the Chinese buying rumors are true."

 

China, the world's largest wheat grower, has dipped into the U.S. market over the last two weeks. In the week ended Oct. 16, China bought 35,000 tonnes of SRW wheat, which traders called an unusual purchase due to the wheat's low protein content.

 

A week earlier, China had bought 32,000 tonnes of hard red spring wheat, a more normal transaction for flour milling.

 

But late last week, China also moved in a big way into the U.S. soybean and cotton markets, buying hundreds of thousands of tonnes of both commodities. This is an indication that China had hiked its domestic corn prices also fed talk of a tightening of Chinese policy to hold grain stocks rather than export.

 

On Monday, exporters reported rumors that China canceled a contract to sell 45,000 tonnes of feed wheat to South Korea and would scrap another sale of feed wheat to the Philippines in a bid to retain stocks for its own poultry and livestock sectors.

 

But the biggest rumor was that China had purchased several million tonnes of wheat from the United States, Australia and Canada, world's top three wheat-exporting countries.

 

"There is a rumor they bought 3 million tonnes from various sources," one U.S. grain exporter said. "This hasn't been confirmed. I don't think COFCO would be able to source such a large amount from just one supplier."

 

State-run grain trader COFCO is China's sole official wheat exporter and importer.

 

China, to meet commitments to the World Trade Organization to open up its farm sector, has already set an import quota of 9.636 million tonnes of wheat for 2004, of which 90% would be allocated to state firms.

 

Unseasonably cold weather and rain in China have delayed planting of winter wheat in some key growing regions.

 

Another exporter said he heard talk that China had bought 200,000 to 250,000 tonnes of U.S. wheat. "The talk is that it was a private deal between a U.S. company and its joint venture in China," he said, adding that he had no details.

 

But he speculated that when China needed wheat in quantities well above those amounts, it would head to the wheat-exporting monopolies in Australia and Canada.

 

"When they need large amounts they always go to the boards, they don't come to the U.S.," he said, referring to the Australian Wheat Board and the Canadian Wheat Board.

 

"If you wanted to buy 2 million tonnes and don't want anybody to know about it, you go to Canada or Australia."

 

A third exporter acknowledged the China rumors but said he had not seen any information from his office in Beijing to indicate any large wheat transaction had taken place.

 

Grain analyst Shawn McCambridge of Prudential Securities said so far, there were no indications that China had suffered any major crop disaster to whittle away its stockpiles and force Beijing to step up imports substantially.