November 26, 2012

Brazil likely to purchase German wheat

In response to lower supply from its main source Argentina, Brazilian buyers may have made a rare purchase of German wheat.

According to European traders and analysts on Friday (Nov 23), Argentina's wheat crop has suffered from months of heavy rain, reducing yields and threatening quality at a time when poor weather has reduced supply in other exporting countries.

"We now hear and have confirmation of at least one vessel of German wheat that will load shortly for Brazil," Geneva-based grains analyst Noel Fryer said a note.

Traders said Brazilian interest in high-quality German wheat made sense but cautioned that sales would have to be confirmed.

"There is a lot of market talk about this but details are unclear and it is still unconfirmed," one trader said. "It looks like Brazil is not going to get enough high-quality wheat from Argentina this year and is casting around for alternative supplies."

Another trader said he believed two shipments of German wheat of unknown size had been sold for January-February shipment for blending with South American wheat in Brazil to bring the South American wheat up to milling standards.

One European analyst, meanwhile, cited an initial shipment of 50,000 tonnes of German wheat to load soon in Hamburg. Argentina has also made wheat sales to other customers, absorbing some of its limited surplus this season.

"Argentina's export surplus is only about four million tonnes. They went and sold to further-away destinations whereas their giant neighbour (Brazil) needs four million tonnes," Freyer said.

Weather-reduced supply in rival exporters like Argentina, Russia and Ukraine has boosted demand for European wheat in recent weeks, with weekly EU export licences setting the highest volume in two years last week.

But other operators doubted whether much German wheat would be sold to Brazil given high prices in Germany coupled with transatlantic shipping costs. Prices for standard German wheat in Hamburg are currently about EUR10 (US$13) a tonne over Paris levels. Paris January wheat was at EUR270 (US$350) a tonne around 1700 GMT on Friday (Nov 23).