February 13, 2012

 

Firm demand to drive up Asian wheat prices

 

 

Strong demand in the cash market and short covering in futures are expected to push Asian wheat prices higher this week, trade participants said.

 

There is buying interest in the cash market as many flour millers in East Asia had not covered first-quarter requirements in advance, hoping for a fall in prices, which did not materialise, a Sydney-based commodities analyst said.

 

On Thursday (Feb 9), a cargo of around 45,000 tonnes of milling wheat with multiple grades, for April-May shipment from Western Australia traded on a free-on-board basis with Australian Premium White, 10% protein, at US$290-US$293/tonne, Australian Standard White, 9% protein at US$280-US$284/tonne, Australian Hard grade at US$305-US$310/tonne.

 

Shipments from the Australian east coast are relatively cheaper around US$280/tonne and US$275/tonne, FOB for APW and ASW grades respectively.

 

Even an overnight slump in wheat futures on the Chicago Board of Trade failed to drag down cash market prices due to strong demand in both East Asia and the Middle East.

 

Iraq has purchased around 100,000 tonnes of Australian wheat this week.

 

"Buyers are bidding US$2/tonne lower but offers are unchanged from yesterday," said a Melbourne-based executive with a global commodity trading company.

 

He said Australian wheat prices are already at least US$20-US$25 lower than a year ago and there isn't much further downside potential.

 

Exporters have sold their wheat faster than the growers have and they need to cover their requirements, which is also keeping prices high, traders in Australia said.

 

Even Australian feed wheat is being offered at par with ASW milling wheat around US$275/tonne, FOB, for shipment in May from the east coast.

 

Unlike last year, when large volumes of wheat in eastern provinces were downgraded to feed, the quality is better this season.

 

Although wheat is available from Australia and the Black Sea region, shipping slots at ports are difficult to obtain and prices are also rising in tandem with corn and soy due to concerns that persistent dry weather in Brazil, Argentina and Paraguay will hurt production.

 

Logistical constraints and a slow pace of sales by growers are prompting trading companies to source wheat from other countries such as the US.

 

South Korea purchased five cargoes of feed wheat last week at US$296.75-US$301/tonne, basis cost and freight, the highest in more than nine months. Traders said most shipments are likely to be from the US.