January 27, 2010


Swell in Black Sea wheat production weighs on CBOT prices


A sharp rise in production and competitive prices are expanding the share of Black Sea-origin wheat in the global grains trade and dragging down both physical and futures prices.


Black Sea wheat production has hit a record high of 94 million tonnes in the current marketing year that ends in May, according to industry estimates. Until two years ago, the Black Sea region produced only around 75 million tonnes.


Production is likely to be above 90 million tonnes in 2010-11 for the third year in succession.


At a time when exporters worldwide are luring buyers with lower rates, wheat from the Black Sea is among the cheapest available both for food and feed grades. The share of Black Sea wheat in the global wheat trade has increased to around 30 million tonnes in 2009 from five million tonnes in 2000.


During the last few days, sales of several thousand tonnes of Black Sea wheat to Asian destinations have been finalised, mostly for February and March shipment, trading executives said.


"We have recently sold Ukranian feed wheat at US$230-US$232/tonne, basis cost and freight, for shipment in containers to Vietnam," said an executive involved in one such deal.


Demand from Asian millers for cheaper wheat has increased immensely in the last two years, said grain analyst Sergey Feofilov. Wheat from the Black Sea region now comprises of about 30% of total imports by Asia-Pacific countries, where it is blended with wheat of other origins, he said.


The bulk of the Black Sea wheat is exported to the Middle East and Africa, but demand in South and Southeast Asia is on the rise. The Ukraine now has a 35% share of South Korea's wheat imports of around 3.2 million tonnes, Feofilov said.


Black Sea end-May wheat inventories are projected at 22 million tonnes, up from 16 million tonnes year earlier, amid heavy purchases by Russian government from growers.


Due to ample supplies, Black Sea wheat is penetrating several destinations across the globe, and has even begun to weigh on Chicago Board of Trade prices. Though the fall in wheat futures on the CBOT has been impressive, it is just beginning, said analyst Scott Briggs.


Milling-wheat of Russian origin is currently being offered around US$178/tonne, free on board.