December 10, 2010

 

Asian grain trading affected by Australian weather

 

 

Asian grain traders are watching the weather in Australia closely as heavy rains continue to pelt wheat-producing regions, casting doubt on the quality of grain from the annual harvest.

 

Wheat prices have been rising over the past week, and despite a correction on Tuesday (Dec 7), uncertainty about global supplies of food-quality wheat is expected to maintain upward pressure on prices.

 

Heavy rain is currently sweeping through South Australia, Victoria, and New South Wales, and will cause further flooding, harvest delays, and quality losses for winter crops including wheat and barley, said an analyst.

 

Australia will still be reaping a bumper harvest this year. The government's chief commodities forecaster, the Australian Bureau of Agricultural and Resource Economics and Sciences, said Tuesday that wheat production this crop year will likely rise to 26.8 million tonnes, up 6.8% from a September forecast and jumping 22% from a revised estimate for production in the last crop year ended March 31, 2010, of 21.9 million tonnes.

 

However, another analyst said on Tuesday (Dec 7) that Eastern Australia's production, excluding Southern Australia, will likely be around 16-18 million tonnes, of which at least eight million tonnes will be of feed grade, including 2-3 million tonnes of badly-damaged grain that may be totally abandoned.

 

After rising 17% in the previous five days, due mostly to the potential impact of the rains on global supplies of food-quality grain, March wheat on CBOT came off a four-month high on Tuesday (Dec 7), dropping US$0.08 one-quarter, or 1%, to US$7.84 three-quarters a bushel.

 

US wheat will likely continue to gain support from the concerns until there is more clarity, although commodity prices in general are currently in correction mode with CBOT wheat being overbought, another analyst said.

 

The quality concerns have led major importer Japan to stop seeking Australian food wheat in its regular tenders recently.

 

Australian Agriculture Minister Joe Ludwig said on Wednesday (Dec 8) that the availability of feed-grade wheat and the quality of other Australian crops won't be known until there is further progress in the annual harvest.

 

The harvest is usually all but done by the year-end, but participants said it's running three-four weeks behind normal schedule now due to the delays and disruptions from wet weather.

 

The downgrading of a significant volume of Australian wheat into feed category this year may also boost trade in grain from other exporting countries.

 

Vijay Iyengar, managing director of Agrocorp International, a global trading company, said Tuesday that at current high global wheat prices, Argentine-origin grain may become economically viable in Southeast Asia.

 

It is rare for South American wheat to be used for milling in Asia, but Iyengar, whose company has been supplying wheat to Southeast Asian buyers for the last 20 years, said even Brazil plans to auction its low-grade milling wheat for export.