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Surging wheat price fuels trade, inflation fears

Singapore, August 6, 2010

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 US 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.

US 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 US 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 US corn and soybeans, with both gaining more than 10 percent in July, although crop-friendly weather in key growing region the US
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."    

Mills in Bangladesh, Thailand, Vietnam, Malaysia and Indonesia use cheaper Black Sea wheat, blending it with higher quality US 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 next week. - Reuters




Tags: inflation | wheat | Grains |

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