October 21, 2003
Europe Spurs Wheat Demand from US; China Seen As Next On the List
U.S. soft red winter (SRW) wheat cash basis levels have risen this week due to an increase in demand from Europe, where feed grain supplies are tight, and on talk of Chinese interest in the market, grain traders said on October 17.
SRW wheat sales were driven in part by the dollar's weakness against major currencies like the euro. They have helped to whittle down supplies of the wheat which were tainted by vomitoxin, the residue of a fungal disease that could pose health risks to humans.
"There's definitely a buzz in the export market that wasn't there a week-and-a-half ago," said grains analyst Charlie Sernatinger of Chicago-based brokerage O'Connor & Co.
"The talk is that Ukraine bought some soft red (winter wheat), talk is Romania is bidding for some soft red, there is the business with the EU, and the weekly sales (report) showed 32,000 tonnes of spring wheat to China," he added.
SRW basis levels jumped by as much as 15 cents per bushel last week in the CIF barge market, which supplies exporters at the U.S. Gulf. That represents a price rise of some $330,000 for a 60,000-tonne cargo.
Traders said up to 250,000 tonnes of soft red winter wheat could have been sold since last Friday to European buyers, mostly from Italy and Spain, for use as feed.
European Union livestock feeders need to make up for a shortfall in corn production this year due to drought. But EU feeders are unable to import U.S. corn, which is cheaper than wheat, due to EU restrictions on genetically modified crops.
A drop in Chicago Board of Trade SRW wheat futures in last Tuesday, to near three-month lows, also spurred demand.
Export competition from Australia came earlier in the season than expected and weighed on the market.
Grains analyst Shawn McCambridge of Prudential Securities said the higher cash prices were evidence of exporters trying to pry wheat supplies from the hands of farmers to meet the demand from European and other importers.
"There's not much pipeline supply at the Gulf, and this European demand is keeping the market on edge," he said.
Exporters, meanwhile, said the European demand had helped to narrow the price differential between "clean wheat" and wheat from this year's harvest which had high levels of vomitoxin. Wet weather in the late stages of crop development encouraged fungal infections, which left the vomitoxin residue.
One exporter said the price spread had slipped from a high of nearly 15 cents a bushel to around 5 cents in the CIF market. Wheat with high vomitoxin is cheaper but can be fed to livestock at levels of up to 10 ppm.
Another exporter said rumors emerged on Thursday that China was seeking to buy a large quantity of U.S. wheat, by some accounts as much as three cargoes, which equates to about 180,000 tons.
The exporter, however, said he had not seen any bids from the Chinese company, rumored to be the China National Cereals, Oils and Foodstuffs Import & Export Corp (COFCO).
Exporters said China normally imports U.S. wheat, but in small quantities and just for blending. The U.S. Agriculture Department reported Friday in its weekly export sales report that China bought 32,000 tons of hard red spring wheat last week, a high-protein wheat easily blended for quality flour.
