SINGAPORE: With strong signs that the world will produce a bumper wheat crop this year, Asian grain buyers may increasingly drag their feet on signing deals in an effort to put pressure on suppliers to cut prices.
Australia and Canada two of the world’s biggest wheat exporters are expecting big harvests. In addition, Black Sea grain, for milling and for feed, is being amply offered at extremely competitive prices. This abundance is sufficient to offset a small drop in the US crop and the growing global supply has nixed any rally attempts in grain futures on the Chicago Board of Trade.
Fearing a further rise in freight rates, which climbed to record highs earlier this year, many Asian buyers have covered their grain needs for more than the normal three-month period. This has given buyers the upper hand to negotiate for better prices as they can wait for more favourable terms.
“Prices may come down as the harvest improves,” said Antonio Moraza, president of Pilmico Foods Corporation, a Philippine flour milling firm. “I don’t have a requirement until November.”
One model of patience is China, which has suddenly slowed buying after rushing to purchase many cargoes from all three leading suppliers earlier this year, sending a signal to other Asian buyers that it might be wise to defer going to the market.
China imported 3.46 million tonnes of wheat in the January-July period, up more than 2,000 percent from the same year-ago period. Trade officials expect China to import up to 8 million tonnes of wheat this year.
“It’s possible Chinese buyers may be waiting for lower prices,” Mark Samson, US Wheat Associates’ vice president for South Asia, told Reuters.
Suppliers under pressure: The International Grains Council estimates global wheat output in 2004/05 to rise to 606 million tonnes the highest level since 1997 and compared with 554 million in 2003/04.
The United States and Canada were offering cargoes at about $200 a tonne, including cost and freight, to Southeast Asia. Australian wheat was offered a couple of dollars cheaper. On the other hand, cargoes from the Black Sea region were offered around $180 a tonne C&F.
Indonesia, Malaysia and Pakistan have bought Black Sea milling wheat, while the Philippines, which has bought Ukrainian feed wheat, is pondering buying milling wheat from that region.
Trade officials said Pakistan, which bought Russian wheat for the first time this year, had put pressure on US exporters to offer shipments at lower prices when they float their new tender, expected to be issued some time later this month. In a Pakistani tender earlier this month, Russian wheat was sold at $16 a tonne cheaper than other origins, despite concerns from Pakistani flour millers on quality.
Pakistan will be looking for shipments from November onwards in its tender, by which time the new Australian wheat crop would be in, giving a chance to Pakistan to buy at still lower prices.
“Pakistan is looking to buy big volumes. Anything cheaper will fly,” said one regional grains trader. “But if freight from the Black Sea region rises again, you never know.” Shipping trade officials said freight rates could remain firm from October onwards. Grain traders are closely watching freight movements, which would be key to signing new grain deals. “The recent freight forward agreements levels suggest we should expect a strong last quarter, although far off from the levels we saw in the first quarter of 2004,” said Voytek Chelkowski, managing director of Seamind Pte Ltd., a Singapore-based shipping services firm.
“Whether the actual rates prove the agreements right remains to be seen, and if there is anything certain we can expect, I’d think, it is volatility,” he added.
This week, gross timecharter rates for shipping from the US Gulf to Japan were at $32,000-$33,000 a day, down from more than $50,000 a day in January.
t $32,000-$33,000 a day, down from more than $50,000 a day in January.
Courtesy: Daily Times