July 22, 2012

 

 

About 43,500 tonnes of US wheat from United Grain Corp. have been bought by the Taiwan Flour Millers' Association Thursday (July 19) for September 3-17 shipment, trading executives said.

 

The association bought Dark Northern Spring wheat with 14.5% protein at US$405.89/tonne and Hard Red Winter with 13% protein at US$377.09/tonne, free on board.

 

Due to a severe drought in the US, the prices are more than US$70/tonne higher than the cost of Taiwan's purchases in mid-June. The association's import prices for high-quality milling wheat are widely considered benchmarks in the Asian grain trade, even though it buys relatively small volumes.

 

After adding freight costs, the grades cost US$437.09 and US$408.29, respectively, up 21% and 24% from June 14. The freight was contracted separately at US$31.20/tonne, up 12% from US$27.94/tonne in a June 14 tender.

 

FOB prices for Dark Northern Spring have risen by around US$72/tonne from the June 14 tender, around the time when prices started to rise because of dry weather in the US that eventually became a severe drought.

 

The drought has mainly hurt US corn crops but it now poses a threat to soy. Wheat prices have also surged, tracking the overall grains complex. The US spring crop from the current sowing season is to be harvested in September.

 

A sharp fall in Russian and Ukrainian wheat output is also supporting global prices.

 

The free-on-board price Taiwan agreed to pay Thursday (July 19) for Hard Red Winter is around US$76/tonne higher than in the June 14 tender despite the recent winter wheat harvest in the US.

 

Kansas City Board of Trade near-month HRW is now around US$9.2250 a bushel, up from US$6.4050 on June 14. Near-month spring wheat on the Minneapolis Grain Exchange is around US$10.0550/bushel, up from US$7.7350 on June 14.

 

"The world doesn't have spare or surplus stocks of wheat this year to serve as an alternative animal feed to corn," said Jay O'Neil, a senior agricultural economist with Kansas State University.

 

Unlike in 2011, when CBOT near-month wheat futures slipped to a discount to corn for the first time in 15 years, they are now trading at a premium of more than US$1/bushel.

 

There is ample animal feed wheat available but milling quality wheat is in shorter supply this year, said Karl Setzer, an Iowa-based research analyst with MaxYield Cooperative.

 

Free-on-board prices of some grades of wheat are lower than corn, particularly in the Black Sea region, but O'Neil said they may rise soon.

 

"The wheat market has to wake up to that fact and make sure it is not priced into the world's animal feed channels," he said.