For the second straight year, Asia must rely on the U.S. and Canada for most of its top-quality wheat, as rains have cut the protein content in grain from traditional supplier Australia.
Asian nations are among the world’s biggest buyers of the superior quality, protein-rich wheat that is used to make noodles, a staple food across the region. Its demand could support prices on the Minneapolis Grain Exchange, and widen spreads with the lower-grade soft wheat traded in Chicago.
Australia, the world’s fourth-largest wheat exporter, has been hit by unusually bad weather for two years in row, which has degraded both quality and quantity.
Analysts estimate production of Australian prime hard wheat at just half a million tonnes this year, down from an average of nearly two million tonnes.
Indonesia, Asia’s top wheat buyer and one of Australia’s biggest customers, is estimated to import 6.7 million tonnes in 2011/12, with most its high-quality milling wheat needs coming from the U.S. and Canada. Japan and South Korea, which together account for more than 10 million tonnes of imports, are likely to follow suit. Tight supply
Chicago soft wheat slid a four-week low in mid-January after the USDA projected global stockpiles to remain near record highs. But the premium Minneapolis spring wheat finished almost unchanged.
“When you look at wheat, it is two markets — one is high-quality milling wheat with 12 per cent and above protein level which is still reasonably tight,” said Adam Davis, a senior commodity analyst at Merricks Capital in Melbourne.
“Anything below 11 per cent protein is surplus; it is trading close to corn, almost like falling into the coarse grain category.”
As a result of tight supply, Australian prime hard wheat with 13 per cent protein is quoted at $350 a tonne free on board, compared with regular milling wheat offered at $230 a tonne.
That $120-tonne premium compares with the 10-year average of around $30. In the U.S., dark northern spring wheat with 13 per cent protein was recently quoted around $330 to $335 a tonne versus $265 a tonne for hard red winter wheat.
“Until November 2010, the maximum ever we had seen was $80-a-tonne premium,” said one Sydney-based dealer.
But some U.S. analysts say a stronger U.S. dollar and higher shipping costs could dampen exports from North America to Asia.