June 2, 2011

 

Asian wheat prices to remain constant in H2

 

 

Asian wheat prices will probably stay consistent in the next half of the year because more exports from Ukraine and Russia will eliminate the decline brought about by EU supply, trade participants said.

 

"Prices will not fall, but they will be under check and may be capped around current levels," said a trader.

 

He said Asian flour millers have been purchasing a large part of their wheat requirements at US$300-350 a tonne, free on board for several months now, adding that this trend will likely continue in the second half.

 

Near-month wheat futures on CBOT were trading at a one-week low of around US$7.80 a bushel on Wednesday (Jun 1), but traders expect the contract to rise towards US$8.20 again.

 

Price gains were capped by ample supply in Australia, the fourth-largest exporter.

 

The International Grains Council (IGC) has forecast Australian inventories to rise 46% by end-September to 8.3 million tonnes.

 

Ukraine removed grain export quotas this month and Russia plans to lift a ban on exports in July. Russia's wheat exports to East Asia have been tiny in the past, but Ukraine has been a major supplier.

 

Traders said physical prices will remain steady around current high levels and futures prices may move higher again despite additional supply of around 10 million tonnes from Ukraine and Russia in the year to June 2012, as the EU's exportable surplus is expected to shrink significantly due to drought in farmlands along the London-Geneva-Warsaw belt.

 

If EU wheat production falls by 10-15% as feared, the region's net exports in 2011-12 could even be nil, said an economist.

 

After excluding imports, EU's net wheat exports in the year to June 30 are estimated at 16.9 million tonnes, or 12.5% of the total output, according to IGC estimates.

 

In 2003, around 22 million tonnes of EU production was lost to drought but there was a large stockpile of around 18 million tonnes to fall back on, said another trader said.

 

But wheat stocks are only around 11 million tonnes now so lower output will definitely lead to a major fall in exports, he said.

 

The trader added that there may be temporary pull-back in prices but overall fundamentals remain strong as the US, the world's top exporter, is also facing drought in the south, where winter harvest is due, and delayed plantings in the north due to floods.

 

He said US hard red winter wheat output may fall by seven to eight million tonnes to 21-22 million tonnes due to the drought in Kansas, Oklahoma and Texas.