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Roaring wheat prices fuels inflation fears and Commercial
Suppliers of Russian wheat to Asia are edging nearer to cancelling contracts after Moscow’s ban on grain exports, forcing buyers to turn to alternative origins as U.S. wheat futures soar to a 23-month high
There was no immediate panic reaction from top Asian importers because
global stockpiles were ample, but the rally could stoke fears of food
inflation in key buyers with a near doubling of prices on the Chicago
Board of Trade since lows in June, analysts and traders said on Friday.
U.S. wheat futures jumped more than 6 percent, taking this week’s gains
to more than 26 percent in a buying frenzy sparked by the move to
temporarily halt grain shipments from Russia, the world’s third-largest
exporter.
“There are two things driving the market, fear and fund buying,” said
Jonathan Barratt, managing director at Commodity Broking Services in
Sydney.
“There is no panic because world stocks are high. If you are a buyer you
are not going to chase these prices, you are only going to buy to fill
spot needs.”
In its July estimate, the U.S. Department of Agriculture has estimated
global wheat stocks at 187.04 million tonnes in the year 2010/11, down
from 193 million tonnes in 2009/10.
The rally in wheat has spilled over into U.S. corn and soybeans, with
both gaining more than 10 percent in July, although crop-friendly
weather in key growing region the U.S. midwest capped gains.
Trading companies that have sold Russian wheat to millers in Asia are
considering declaring force majeure on supply contracts which could
involve up to 1 million tonnes of wheat.
“If the contract says Russian wheat, it is straight away force majeure,”
said one trader with an international trading company in Singapore,
referring to terms in commodity deals that remove liability for
unforeseen events which hinder trade.
“We haven’t heard but it will happen, even my company will do it.”
FEARS OF FOOD INFLATION
Mills in Bangladesh, Thailand, Vietnam, Malaysia and Indonesia use
cheaper Black Sea wheat, blending it with higher quality U.S. and
Australian grains. Feed millers have also been snapping up cargoes of
feed quality wheat from Ukraine this year.
Indonesia, Asia’s top wheat importer, is covered for higher consumption
in Ramadan, an industry official said. The Muslim fasting month is due
to begin in the middle of this month.
“They started stocking up three months ago. They will wait and see for a
while and will be back to market after the Eid in mid-September,” said
an official of U.S. Wheat Associates, referring to the festival marking
the end of Ramadan.
Persistent high prices could drive fear of food inflation in key buyers such as Indonesia and the Philippines, analysts said.
“If prices remain elevated for a sustained period, then the probability
of upward adjustment in retail price of wheat and its derivatives goes
up,” Barclays Capital said in a report. “However, food prices tend to be
politically sensitive, so we can expect some action from Asian
governments.”
China and India, the world’s top wheat consumers, are largely insulated from rising prices by sufficient wheat reserves.
In the Philippines, a leading importer of feed wheat from the Black Sea region, buyers were waiting to hear from suppliers.
“Those with supply contracts are a bit nervous, even the buyer,” said a grains trader in Manila.
“The contracts are written with optional origins but it means the
sellers will also have to pay through their noses and those noses will
bleed really bad.”
Philippine feedmillers have contracted to buy 1.1 million tonnes of feed wheat this year, about the same level in 2009.
Russia’s Grain Union, a key industry group, has asked the government to
postpone its export ban until September 1, union spokesman Anton
Shaparin told Reuters. The ban, announced on Thursday, will take effect
on August 15.
The rising price hit shares of Asian food companies that are end-users of the grain, while those of producers benefited.
China’s best-selling instant noodle brand, Tingyi, dropped as much as 4
percent while rival Want Want China fell 1.7 percent. Indonesia’s
largest instant noodle maker, PT Indofood Sukses Makmur, lost as much as
3.5 percent.
But shares of wheat producers in Australia, the world’s fourth largest
wheat exporter, jumped on the higher price of the commodity. GrainCorp
rose 3.6 percent while AWB jumped 5.2 percent.
Source: Reuters
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