December 4, 2012

 

Asia wheat prices may rise on tight US supply

 

Due to an on-going drought in the US and the latest Egyptian purchase of US wheat, Asian wheat prices are likely to move higher this week.

 

Trade participants said on Monday (Dec. 7) that Egypt's purchase of US wheat this weekend indicates a tight export surplus in Europe and Black Sea region.

 

Egypt, the world's largest wheat importer, has bought 165,000 tonnes US soft white winter wheat around US$336-338/tonne, free-on-board (FOB) and 115,000 tonnes soft red winter wheat around US$349-352/tonne, free-on-board for January-February shipment. French and Black Sea region wheat is now offered around US$360-370/tonne, FOB.

 

Even though it is costlier to transport wheat from US to Egypt compared with shipments from Europe, on a delivered basis US wheat has become competitive in North Africa and the Middle East, said a Singapore-based executive with a global commodities trading company. In the next six months there will be shipments of more than one million tonnes of US wheat to Egypt, he said.

 

Cash demand for US wheat and corn is bullish for prices but upside is limited this week because speculators are liquidating long positions of the near-month December contract on the Chicago Board of Trade that is due to expire next week, said Kaname Gokon, deputy general manager at Tokyo-based brokerage Okato Shoji.

 

Traders expect the most active CBOT March wheat futures contract to test US$8.90/bushel in the next few days. The contract is currently trading around US$8.72/bushel. Dry weather in the Hard Red Winter wheat planting areas in the US is also supporting prices.

 

"The longer it takes for drought relief to come, the greater the chance that crop sizes will be affected, not only due to lower yields, but also planted acres in general," said Karl Setzer, a research analyst with Iowa-based MaxYield Cooperative.

 

Lower crop quality in Eastern Australia where rains have dragged down yields has tightened supply of high grade milling wheat. Exporters are not offering Australian wheat in Egypt's tender because they are worried about low protein of Australian Standard White (ASW) grade while price of Australian Premium White (APW) will be uncompetitive, Lachie Stevens, Managing Director of Victoria-based Lachstock Consulting.

 

In many areas the protein level is one percentage point lower than normal in this year's wheat harvest, Stevens said. ASW grade is now offered around US$335/tonne, FOB in Eastern Australia and APW grade is quoted around US$355/tonne, FOB. Prices in Western Australia are even higher with latest offers of APW around US$380/tonne, FOB.

 

Some of this demand has shifted to India, which is selling its surplus wheat from state reserves but shipments are slow. Even though government has allowed exports of an additional 2.5 million tonnes of wheat from state reserves, exports of even the first tranche of two million tonnes that started in July are unlikely to be completed before April.

 

Since July around 800,000 tonnes of wheat from government stocks has either been exported or is under loading at ports, said Tejinder Narang, an advisor with New Delhi-based trading company, Emmsons International.