The Saudi grains authority said on Sunday world wheat prices are expected to retreat further but not to the lows seen earlier in 2010 and that it can wait five months before issuing its next hard wheat tender.

Wheat prices in both the United States and Europe retreated on Friday but held just below two-year highs as markets reacted to the sudden imposition of a ban on grain exports from drought-hit Russia.

Waleed Elkhereiji, director general of Saudi Arabia's state-run Grain Silos and Flour Mills Organization (GSFMO), also said the kingdom's domestic harvest of hard wheat stood at 1.1 million tonnes this year, 16 percent above the 950,000 tonnes produced last year.

'A drop in input costs, seeds and agricultural equipment, has encouraged planting and led to a higher harvest,' Elkhereiji told Reuters in an interview at GSFMO's headquarters in Riyadh.

GSFMO has enough hard wheat stocks to cover the kingdom's needs until April, without taking into account its 990,000 tonnes hard wheat purchased in June and additional stocks of 90,000 tonnes of flour, he said.

'We are also taking delivery of the local hard wheat harvest. We have so far received 900,000 tonnes and there is an additional 200,000 tonnes expected to be delivered by end-September. We have a comfortable level of stocks,' he said.

The authority will still need to import 2 million tonnes of hard wheat before the start of the next harvest in the desert kingdom. 'It's the same quantity imported this year'.

Elkhereiji also revealed that GSFMO will start importing soft wheat for the first time. 'Some food industries need it so we are going to import it. If it is not in our next tender it will be the one after it, in 2011. We have already started adapting our mills to be able to process soft wheat'.   

He declined to elaborate, saying the soft wheat imports have yet to be determined. Asked about the potential size of GSFMO's upcoming hard wheat tender, Elkhereiji said: 'Current level of prices does not encourage buyers to enter the market with large quantities'.

'The pre-emptive planning we have gives us five months before issuing the next tender... Prices will decline but they will not return to the lows we have seen earlier this year,' he said.

The price spike after Russia announced its export ban was such that GSFMO would have paid an extra $80 million for its latest hard wheat purchase. 'We worked hard and luck was on our side,' said Elkhereiji.   

'Russia accounts for 10 percent of the world's wheat trade and the drought that has affected it has not spared some other European producers. Still Canada, the United States, China, India and Pakistan are doing well.

'I don't foresee a crisis, or a crisis similar to what happened in 2007 and the prices now are still below their level in 2007.'    

He noted Saudi Arabia has not imported Russian wheat since 2008. Since 2008 the kingdom has sought to save water by reducing the amount of wheat they buy from local farmers by 12.5 percent a year, abandoning a 30-year wheat cultivation plan that had helped the country cover its domestic needs.

The policy has turned GSFMO into one of the biggest new buyers in the international grains market. GSFMO will sign on Tuesday agreements to expand its silos and milling capacity as it readies for an increase in imports.

It will award the Swiss Buhler AG two contracts worth 368 million riyals ($98 million) to build a 1,200 tonnes per day flour mill in Makkah and to expand by 67 percent mill capacity in Jeddah to 450 tonnes per day. Local firm Haif Company will be awarded a 506 million riyals contract to build grain silos in Makkah with a 250,000 tonnes capacity.
 - Reuters