By Karl Plume
July 8 (Reuters) – China has bought more than 1.3 million tonnes of U.S. wheat in the past week in a flurry of deals, including its largest single-day purchase since January 2004 confirmed on Monday, as the world’s top wheat grower sought to replace its rain-damaged crop.
U.S. prices are near the lowest levels in a year as American farmers are in the midst of gathering their largest soft red winter wheat crop in five seasons and world wheat stocks mount with the advancing Northern Hemisphere harvest.
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“These sales followed a report out of China that their wheat crop suffered some damage with the rains during harvest so quality deteriorated. But if you go back, these wheat purchases started in April,” said Roy Huckabay, a grains analyst with The Linn Group.
“They’re worried about their domestic wheat prices getting away from them,” he added.
Domestic wheat on Monday jumped by as much as 30 yuan per tonne in several markets.
Wheat futures on the Zhengzhou Commodity Exchange were near the highest in six months, while U.S. wheat on the Chicago Board of Trade last week hit the lowest point in over a year.
Although SRW is not the cheapest the wheat in the world, consistent grain quality and timely shipments from the world’s top grain exporter likely boosted its appeal over rival suppliers, analysts said.
Argentina is reining in its wheat export program following a disappointing crop, Australian supplies will not be available in great volumes until early 2014, and China does not have a phytosanitary agreement to import Russian wheat, they said.
In a major wheat tender by top importer Egypt last week, the U.S. wheat offer was $20 per tonne higher than French wheat on a free-on-board basis and $26 per tonne higher than Russian wheat
The U.S. Department of Agriculture on Monday confirmed private sales of 840,000 tonnes of soft red winter wheat to China for shipment in the 2013-14 marketing year, which began June 1.
It was the third consecutive daily sales announcement of SRW wheat to China, following a 120,000-tonne sale reported on Friday and a 360,000-tonne sale announced on Wednesday.
RAIN DAMAGE
China Grain Reserves Corporation (Sinograin) said last week that it had suspended stockpiling from the country’s top wheat region of Henan to cool prices after ill-timed rains damaged some of the crop.
Analysts have estimated that around 10 million tonnes of China’s milling quality wheat has been reduced to feed grade.
Some rising concerns that rain was degrading the U.S. crop in the main SRW growing areas of the eastern Midwest and mid-South may have encouraged China to buy now or potentially face higher prices later, analysts said.
“They are probably feeling that we’re seeing the most pressure that we’re going to see on prices for the time being so they secure the U.S. portion of their needs,” said Shawn McCambridge, an analyst with Jefferies Bache.
Beijing may tap other markets such as the EU later in the season, he added.
China has purchased some U.S. spring wheat this season and traders said importers have also inquired about hard red winter wheat – both higher-protein varieties used in bread flour.
But most of China’s purchases have been SRW – used in cakes, pastries and noodles – with at least 2.8 million tonnes already booked for the current marketing year, according to USDA data.
Imported SRW will be used to some degree in animal feeding rations as well to displace higher-cost corn, analysts said.
USDA’s latest forecast for 3.5 million tonnes of wheat imports by China from all origins in the 2013-14 marketing year is understated, possibly by a large margin, analysts said. USDA may adjust as soon as Thursday when its next monthly report will be released.
“I think they’re taking SRW and are going to use quite a bit of it for feed. It’s a little bit cheaper than corn and its got better protein so on a protein basis it’s really a good deal,” said Jack Scoville, analyst with Price Futures Group.
“There’s a lot of talk that they plan to buy 8 to 10 million tonnes of wheat from all over the world.”
