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Singapore. There was no immediate panic reaction on Friday from top Asian wheat importers after suppliers of Russian wheat to the region came nearer to canceling contracts after Moscow’s ban on grain exports, forcing buyers to turn to alternative origins.

US wheat futures have soared to a 23-month high.

Analysts and traders said on Friday that there was no panic 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.

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.

Mills in Indonesia, Malaysia, Bangladesh, Thailand and Vietnam 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 expected to begin on Aug. 11.

“They started stocking up three months ago. They will wait and see for a while and will be back to market after [Idul Fitri] in mid-September,” said an official of United States Wheat Associates, referring to the festival marking the end of Ramadan.

Persistent high prices could drive fear of food inflation in key buyers such as Indonesia and the Philippines, analysts said.

“If prices remain elevated for a sustained period, then the probability of upward adjustment in retail price of wheat and its derivatives goes up,” Barclays Capital said in a report.

“However, food prices tend to be politically sensitive, so we can expect some action from Asian governments.” China and India, the world’s top wheat consumers, are largely insulated from rising prices by sufficient reserves.

In the Philippines, a leading importer of feed wheat from the Black Sea region, buyers were waiting to hear from suppliers.

“Those with supply contracts are a bit nervous, even the buyer,” said a grains trader in Manila.

“The contracts are written with optional origins but it means the sellers will also have to pay through their noses and those noses will bleed really bad.” Philippine feedmillers have contracted to buy 1.1 million metric tons of feed wheat this year, about the same level in 2009.

“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 United States Department of Agriculture has estimated global wheat stocks at 187.04 million metric tons in the year 2010-11, down from 193 million tons in 2009-10.

The rally in wheat has spilled over into United States corn and soybeans, with both gaining more than 10 percent in July, although crop-friendly weather in key growing region the United States 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 a million tons 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.”

Russia’s Grain Union, a key industry group, has asked the government to postpone its export ban until Sept. 1, union spokesman Anton Shaparin said. The ban, announced on Thursday, will take effect on Aug. 15.

The rising price hit shares of Asian food companies that are end-users of the grain, while those of producers benefited.

China’s best-selling instant noodle brand, Tingyi, dropped as much as 4 percent while rival Want Want China fell 1.7 percent. Indonesia’s largest instant noodle maker, Indofood Sukses Makmur, lost as much as 3.5 percent.

But shares of wheat producers in Australia, the world’s No. 4 exporter, jumped on higher prices. GrainCorp rose 3.6 percent while AWB soared 5.2 percent.


Reuters