August 12, 2010

 

Wheat prices in Asia expected to remain steady

 

 

Asian wheat prices are likely to be steady for the rest of the week but traders continue to be disconcerted by defaults amid recent market volatility.

 

Since mid-June, physical wheat prices in Asia are up more than 55%. Meanwhile, suppliers from the Black Sea region have backed out of contracts finalised earlier at lower prices.

 

Australian prime wheat is now being offered around US$310-US$315 tonne, free on board and prices have not declined despite a correction in the futures market. "The problem is too severe to be settled in a week or two because several hundred thousand tonnes of deals are involved," said an executive at a global trading company.

 

He said grain traders are scouting for alternative origins because shipments from Ukraine and Russia are very difficult to procure. This is keeping physical prices of wheat high.

 

Ukraine is a major supplier of feed wheat to Asian countries and exporters are urging the government to impose a direct ban on exports rather than put procedural barriers which have already reduced shipments to a trickle. This will enable them to declare force majeure rather than opting for blatant defaults.

 

Bangladesh is among the worst affected by the turmoil because of its dependence on the Black Sea region for imports.

 

"We have pending contracts of around 400,000 tonnes of wheat with different suppliers, but since most of them import wheat from the Black Sea, we may eventually get only one fourth of this quantity," a Bangladeshi government official said.

 

The country will re-tender for the quantities that are not shipped under earlier contracts.

 

Bangladesh was expected to tender Wednesday (Aug 11) to buy 50,000 tonnes of wheat but the contract will be finalised only later this month. It also plans to purchase 200,000 tonnes of wheat from India under a government-to-government deal.

 

Feed wheat sales from Ukraine to the Philippines have also been cancelled. Some sales to South Korea have been postponed and there has been a shift in origin of at least one of the cargoes to the US

 

Exporters in Turkey have cancelled wheat flour sales of around 40,000 tonnes to Indonesia due to the supply shortfall in the Black Sea region.

 

Importing cheap wheat from the region and exporting processed flour has been a lucrative business for millers in Turkey.

 

Every year Indonesia imports more than 500,000 tonnes of flour together from Turkey, Australia and Sri Lanka.

 

Fransiscus Welirang, the chairman of the flour mills association in Indonesia, said the latest surge in prices implies among other things that flour will not be imported at artificially low prices. However, he said, the country has already covered its wheat needs until September and there is no need to panic.

 

Prices of low-protein flour are expected to go up later this year, in the absence of grain from the Black Sea.

 

Asia's exposure to wheat from Russia is limited but it will have to bear the brunt of higher prices while sourcing most of its requirements from the US and Australia.

 

Japan is continuing with its weekly tenders to import wheat and South Korean millers purchased 23,000 tonnes of US wheat Tuesday (Aug 10).