August 23, 2010

 

Asia wheat suppliers switch origin to European countries

 

 

Global trading companies supplying feed wheat to Asia are switching their origin to European countries amid defaults from the Black Sea region, according to several trading executives.

 

They said contracts finalised earlier for the supply of around one million tonnes of optional-origin feed wheat which was to be secured from Ukraine and Russia, will now be met partly from eastern and central Europe over the next few months.

 

The switch in contracts marks a significant shift in global grain trading, reflecting increased demand for European wheat and supporting prices there.

 

Shipment of three cargoes totalling around 165,000 tonnes of feed wheat to South Korea were initially postponed from July to August and will now be loaded from Romania and Bulgaria instead of Ukraine, a Seoul-based trader said.

 

Although optional-origin wheat was mentioned in the contracts, exporters had lined up supplies from Ukraine, which they were unable to get due to an indefinite delay in official clearances, he said.

 

South Korea, one of Asia's largest buyers of feed wheat - purchasing around 180,000 tonnes a month - had already locked in supplies until October, but shipments for July have spilled over to August.

 

Russia has banned exports of wheat because of a devastating drought, and it may even have to import from neighbouring countries. Meanwhile, Ukraine has imposed stringent rules on wheat quality inspection, which has reduced shipments to a trickle; it has plans to impose export quotas.

 

Vietnam and the Philippines, two major importers of Ukrainian wheat, are also switching origins for similar reasons.

 

"We will try to get the maximum possible volume from Eastern and Central Europe, but there are several limitations," said an executive at a global trading company.

 

Feed wheat buy tenders to South Korea finalized in June were won at US$190-US$200 a tonne, but suppliers will have to pay around 50% more to secure replacement wheat.

 

"Transnational companies have a reputation to protect. They have no option but to secure supplies from elsewhere to avoid getting blacklisted in future tenders," said a trader who is making alternative arrangements after a contract for wheat from the Black Sea region was cancelled.

 

Exporters said recent rainfall has boosted the moisture content in Central European wheat and protein is sometimes not up to the level mentioned in the contract.

 

They said due to strong demand, some of them are trying to source their requirements from Moldova, but shipment will still have to be made via Ukraine's Odessa port, which can lead to customs-clearance red tape.