June 4, 2012

 

Bangladesh wheat prices may rise on tight supply

 

 

Due to limited supply and a delay in the arrival of imports, major Asian wheat exporter Bangladesh is expected to see a rise in prices this month, traders and government officials said.

 

Normally, wheat prices fall with the onset of the harvest, but a bumper crop of around 1.1 million tonnes this year has failed to cool prices, said a Dhaka-based government official.

 

Bangladesh is one of the world's largest importers of wheat, buying between 3.0 million and 3.5 million tonnes annually, of which close to 800,000 tonnes is brought in by the government to maintain buffer stocks, distribute to low-income households at subsidized rates and keep a check on inflation.

 

Although trading companies could bring in more wheat from India, banks are reluctant to open lines of credit to these firms due to low foreign-exchange reserves, an executive of a Bangladesh-based commodities trading company said.

 

This week, the government resumed issuing tenders to import wheat after a two-and-a-half-month gap due to a delay in the arrival of earlier imports.

 

State reserves, at 229,000 tonnes as of May 29, are down 42% from a year earlier, even though the local harvest has just concluded and the government has purchased 100,000 tonnes or close to 10% of the production, well above the historical procurement average.

 

According to government data, close to 275,000 tonnes of previously contracted imported wheat from various sellers--more than currently-held national reserves--is yet to reach Bangladesh shores.

 

The government disburses around 200,000 tonnes of grains each month under various social programs and is increasingly using rice to meet its commitments.

 

Bangladesh has already extended to June 30 the deadline for receiving imported wheat shipments of up to 100,000 tonnes from Rokeya Automatic Flour Mills Ltd., one of the importers via tenders, government officials said.

 

Earlier this year, Rokeya Automatic had secured two contracts from the Bangladesh government to supply 50,000 tonnes each at US$288.77/tonne and US$306.95/tonne, cost, insurance and freight, liner out. It's now arranging cargoes from eastern India. In liner-out deals, demurrage costs are borne by the seller.

 

Another food ministry official said the government had the option to cancel the contract and encash the company's performance guarantee deposit but then would have to purchase wheat from elsewhere at higher prices just around the time when deliveries under an inter-government deal with Ukraine are also delayed.

 

"We are interested in getting wheat rather than collecting penalties," he said.

 

Ukraine is yet to supply 47,000 tonnes of the 60,000 tonnes of wheat it sold to Bangladesh in December. Another proposed deal to buy wheat from Ukraine fell through over prices.

 

Ukraine offered 200,000 tonnes of wheat with 10%, 11% and 12% protein around US$305/tonne, US$310/tonne and US$315/tonne, cost, insurance and freight, liner out.