China’s hunger for wheat to lift prices by 10 per cent

Frost is estimated to have hit as much as 20 million tonnes of wheat in the world’s largest producer

Reuters – Soaring Chinese wheat purchases due to weather-related crop damage at home could lift global prices of the grain by about 10 per cent in the next few months, a survey of traders showed.

The rush to secure wheat overseas by top consumer China is prompting farmers in the world’s second-biggest exporter Australia to hold back sales of the grain to traders in hopes of higher prices, curtailing supplies.

China’s buying spree is also driving up costs for leading wheat-importing nations in Asia and the Middle East.

The push for the imports comes as Reuters interviews with farmers, and new analysts’ forecasts, showed damage from frost and rains was estimated to have ruined as much as 20 million tonnes of China’s wheat crop, equivalent to Australia’s annual exports.

China has already booked more than three million tonnes of wheat shipments in the year to June 2014 — matching total imports for all of last year — and is estimated to need 10 million tonnes of imports for the year, which would be more than the nine million that Egypt, the world’s top buyer, is expected to purchase.

“Farmers are very cautious to sell forward,” said Tom Puddy, head of marketing at CBH Group, Western Australia’s bulk grain handler. “They are seeing China’s interest in buying, so they are waiting to see how the crop progresses.”

The United Nations’ food agency, though, played down the risks to global supplies for now but said Chinese buying could underpin wheat prices.

“It could give some support to wheat prices which have been falling like all the other grains,” said Abdolreza Abbassian, senior economist at the Food and Agriculture Organization in Rome.

“(China) had the frosts and that had some impact, so there is a greater need for quality wheat.”

Wheat prices are down about 15 per cent so far this year, tracking corn which has declined on forecasts that record U.S. production will ease three years of tight supplies.

The spread between Chicago wheat and corn is likely to widen to $2.0-$2.5 a bushel in the coming months from $1.30 as corn production recovers and Chinese imports buoy wheat demand.

Two traders contacted by Reuters forecast an eight to 10 per cent rise in Australian standard wheat prices over the next few months, while a third saw a five per cent gain.

A fourth forecast 10-15 per cent gain for U.S. soft red winter wheat, which is what China has been buying and is comparable to the Australian variety. Another trader predicted U.S. wheat prices will rise at least five per cent.

In Australia, where the impact of Chinese buying is felt most, the price of wheat that will be harvested in December is already trading at a premium to U.S. prices.

“We have excellent prices despite the fact that we have such a big crop coming in,” said Stefan Meyer, a manager for cash markets at brokerage FC Stone in Sydney. “We are trading on a positive basis as China has come in and bought wheat.”

China is expected to take between two million and three million tonnes of Australian wheat this year, up from the 500,000 tonnes to one million tonnes it typically buys, forcing its traditional customers to seek alternative supplies.

Iran, Iraq, Saudi Arabia and Yemen are key buyers of Australian wheat in the Middle East. In Asia, top importers are Indonesia, Japan and South Korea.

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