June 11, 2012


Asian feed millers to purchase Black Sea region wheat



After acquiring most of their requirements from Australia for 2010-11, Asian animal feed millers may shift toward sourcing more wheat from the Black Sea region, trading executives, industry officials and analysts said Friday (June 8).


India remains the 'dark horse', which can turn the tables in its favour to become a major source of feed wheat by subsidising sales of previous years' harvests from its 50-million-tonne government stockpile, but market players are still uncertain whether a current proposal to this effect will be approved and quickly implemented.


Cheaper and larger volumes of wheat may be available from eastern and central Europe from August onwards, said a trader in Singapore.


Small volumes of Black Sea and central European feed wheat are being offered for August shipment around US$240/tonne, free on board, but it may translate to around US$290/tonne on a delivered basis in East Asia.


Australian feed wheat exports are unlikely to be below US$290/tonne but the Black Sea region's discount to Australian wheat will widen closer to the European harvest in July-September.


Traders at present are reluctant to offer large volumes of Black Sea region feed wheat because of the likely sharp fall in Ukraine's output in 2012-13 but the situation may alter in the next few months.


They aren't confident of filling an entire panamax shipment of 60,000 tonnes in August for East Asian destinations, an exporter in the Swiss city of Lausanne said. However, volumes traded are likely to pick up from September onward.


London-based International Grains Council (IGC) has forecast wheat exports from Russia and Ukraine will fall 21% and 26% to 17 million and four million tonnes respectively in the next marketing year that begins July 1 but traders expect that in absolute numbers the two countries and central European countries will be a major supplier of feed wheat to East Asia.


Overall wheat available from central Europe and Black Sea region will be lower than 2011-12 but share of feed-grade quality is expected to be higher, they said.


"Feed wheat prices will be higher due to tight availability but two trends are likely in August-February period, shift of animal feed demand to corn from wheat and sourcing of more feed wheat from Europe rather than Australia," said another trader in Singapore.


Traditionally, East Asia has met much of its feed wheat requirements from the Black Sea region, and there's no reason why it shouldn't be the same again, another trader in Australia said.


Australia became a major feed wheat supplier by default because rains damaged a large part of the crop in 2010-11 and 2011-12 but the same may not be the case in the next harvest, they said.


Executives also point out that rains damaged Australian wheat in late-2010, just a few months after Russia had its worst drought in a millennium and feed wheat supply from the Black Sea region dried up.


East Asian countries import more than 30 million tonnes of wheat, with a substantial portion used as animal feed. Around 50% of animal feed is wheat and corn. Two years ago, the East Asia's annual wheat imports were less than 27 million tonnes, according the estimates of the International Grains Council and have since jumped up 15%.


Some traders say Australia's large inventories of more than nine million tonnes of wheat contain no more than two million tonnes of feed-grade quality. Another large volume of more than three million tonnes deemed as feed-grade in some quarters, can actually be exported as lower-quality milling wheat, such as Australian General Purpose and Australian Utility Hard grades.


They said Australia's feed wheat exports are also slowing down because better returns, equivalent to US$275/tonne, FOB, can be fetched by selling it locally in New South Wales and Queensland.