Flour millers in Asia have been caught on the wrong side of a rally in wheat prices as they waited for the market to decline, a stark contrast to animal feed producers who booked cargoes of corn several months before prices for that grain jumped.
Benchmark Chicago corn futures climbed by almost a fifth in May as heavy rain and flooding across the US Midwest delayed planting. Wheat gained by a similar amount, largely following the corn market higher.
“Some flour millers are scrambling to get hold of supplies now (after earlier holding off on purchases),” said a wheat trader who sells Black Sea cargoes in Southeast Asia. “The rally in prices has caught them off guard.”
Most Asian wheat importers, including millers in Indonesia, the world’s second-largest buyer of the grain, are covered for supplies until July, but purchases of cargoes for August arrival are less than 50-percent complete, three trade sources said.
That compares with corn importers, who have locked in supplies for arrival up to October, they said.
All traders were unwilling to be named as they were not authorised to speak to media.
Asia is by far the biggest importer and consumer of both corn and wheat.
Black Sea wheat with 11.5 percent protein is currently being quoted at $225 a tonne, including cost and freight (C&F), compared with deals done at $210 a tonne before the rally in May.
“Wheat buyers were looking at prices to fall at least $5 to $7 a tonne from $210,” said one Singapore-based trader.
Meanwhile, corn buyers in South Korea, Taiwan, Malaysia and Vietnam bought the bulk of their supplies at around $180-$190 a tonne, C&F, in February and March, for shipment from May to October.
Corn prices were quoted at $215 a tonne, C&F, this week.
“Corn buyers felt the price of $180 to $190 was good for them and the market was unlikely to go much lower than that,” said another of the traders in Singapore.
Several years of bumper production of corn and wheat across the world have turned most grain processors in Asia into hand-to-month buyers, taking cargoes just a few months in advance.
But flooding and excessive wet weather sparked the rally in grain prices, which had been trading near multi-month lows.
The US Department of Agriculture earlier this week reported US corn planting was 67% complete as of Sunday, behind market estimates and well below the average pace of 96% at this time of year.
Wheat prices are likely to be supported by dryness in Russia and as Australia faces its third year of drought.