Australia to sell record wheat volume to China

Australia is expected to sell record volumes of feed wheat to China this year, with the world's third-largest exporter having abundant supplies while China's wheat crop is threatened by drought, traders said.

Traders said Australian feed wheat was now the cheapest in the world, selling at around $US30 per tonne less than US corn, which faces its tightest supply situation since the early 1930s.

"Trade talk is that China has bought between 300,000 tonnes and 500,000 tonnes and has shown further interest at lower prices," a Melbourne-based trader said.

"It is going to be related to corn prices and how much they switch their coarse grain demand into feed wheat."

The trader said China may buy up to 1 million tonnes of Australian feed wheat following a downgrade of nearly half the just completed 2010/11 harvest to lower quality because of wet weather.

China normally only buys quality wheat from Australia, but this year is seeking low grade feed wheat as US corn prices soar.

The trader's estimates were supported by a Sydney-based trader who said flour mills throughout the world were also buying lower quality Australian wheat for blending purposes that would save them millions of dollars.

Baking products or feed

The poorer quality wheat will either be bought for blending with better quality wheat for baking products or used as livestock feed.

"Australian feed wheat will be in demand not just in China but also in other parts of the world, with $7 per bushel corn prices," a Singapore-based trader said.

"It is not surprising to see 500,000 tonnes being sold to China and we expect more deals in coming weeks," he said.

Australia, which typically produces only four million tonnes of feed wheat a year mainly for domestic consumption, is likely to see around half of its 2011 crop of 22 million to 26 million tonnes reduced to poor quality, after unseasonal rains and floods damaged crops just as farmers geared up for harvest in December.

Last week the US government slashed its forecast for US corn stock piles nine per cent, projecting the tightest supply since the 1930s Great Depression as a record amount of the crop is used to make ethanol.

On Monday corn rose 0.4 per cent, climbing to its highest since July 2008 on tightening global supplies.

China normally buys up to one million tonnes of milling wheat from Australia each year but has previously shown little interest in feed wheat.

The United Nations Food and Agriculture Organisation (FAO) said last week wheat output in China, the world's largest producer and consumer of the grain, may be at risk because of a severe winter drought in its main northern producing regions.

The FAO warned about rising commodity prices, particularly for wheat, that could cause social unrest such has been seen in Tunisia and Egypt.

Wheat prices surged last August when Russia imposed a wheat export ban after severe drought hurt harvests across the region. In October, Ukraine, another major grain exporter, imposed quotas on exports because of the drought.

"There seems to be reasonable demand for Australian feed wheat," managing director of Pentag Nidera, the Australian arm of privately owned Dutch firm Nidera, Steve Burt said.

"I suspect that China has been a buyer but we've also seen Bangladesh, the Philippines, Thailand and rumours of stuff into Europe because we are certainly close to European values but whether we meet quality specifications is another story."

Burt added that there had also been strong demand out of the Middle East for milling wheat, with Iraq issuing another tender during the weekend from which Australia was likely to win some business.

"There's also sales into Egypt of lower quality grain where it is a bit easier to meet quality specifications," he said.

AWB Ltd sold 55,000 tonnes of Australian Standard White milling wheat to Egypt last week at $US345 per tonne, with agreed freight costs at $US37.35 per tonne.

(Source: http://ping.fm/mMull)

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