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22 Jul 2020 | 13:51 UTC — New York
Highlights
Prices had rallied as much as 7% this month
Higher freight rates added to costs
Buyer sidelined may 'bite the bullet'
New York — Black Sea wheat prices dropped to a one-week low as of July 21 as buyers were sidelined after gains over the prior two weeks due to lower availability of product for July through early August loading.
The 12.5% protein wheat FOB Black Sea wheat price dropped by $2.50 on July 21 to $206/mt, the lowest since July 13, according to assessments by S&P Global Platts. Prices had climbed as much as 7% this month, reaching the highest level since July 2019. Traders were reminded of the previous rally at the beginning of the 2018/19 marketing year (July-June) when 12.5% protein wheat started trading above $211/mt in July 2018 and reached $228.25/mt by the end of the month amid falling wheat production expectations following a dry and hot weather in June of that year.
The rally in prices for most of this month was mainly due to fears of shortage during July through early August due to lower yields in the southern parts of Russia and Ukraine where the harvest starts first. Dry and warm weather in April and May had lowered production potential in the southern regions. Rains that arrived in June partly offset the negative impact although not fully as some damage was irrevocable. However, market sources expect the rains in June to improve crop conditions in the central part of Russia and Volga district where the kernels were less developed and the temperatures were below the average for that time of the year.
Disappointing yields observed at the beginning of the harvest which started at the end of June prompted farmers to retain sales, making less wheat available in the market and consequently fed fears of more difficulties to obtain wheat in the CPT market. Exporters with short positions in the FOB market were looking to cover their position, pushing prices higher.
"It's been a tough one month. Traders aren't showing competitive prices," a source at a flour mill in Indonesia said, adding that the mill will be back in the market in one to two weeks time if prices soften.
Most end-buyers in the region are currently biding their time, but flour millers that still have open demand for August-September shipment are running out of time.
"We are pretty much against the wall at this point. Seems like we might have to bite the bullet for August-September," another flour miller source said, adding that they are exploring the possibility of differing the shipment dates by a week or so, which would buy them some more time to make a purchasing decision.
According to some sources, the current price levels are not justified from a fundamental point of view.
The yields in the center of Russia and Ukraine and Volga district are expected to show improvement from the initial cuts in the southern region. Therefore, wheat availability is expected to increase when the harvest progresses. "Once these few shorts have been covered, the market will cool down for nearby loading as the destination doesn't pay up these levels and the demand remains moderate," a trader said.
A rally in the Black Sea FOB wheat prices coupled with an uptick in freight rates have inflated wheat prices on CFR basis and pushed end-users to the sidelines in southeast Asia.
The Platts assessed Supramax freight for grains from Yuzhny, Ukraine, to Cigading, Indonesia, jumped 28% in the past month to $31.75/mt as of July 21.
In South Korea, feed wheat prices have surged by 8% in the last three weeks. On July 21, South Korea's Nonghyup Feed Inc., purchased 60,000 mt of feed wheat at $232.90/mt CFR, plus $1.40/mt second port premium, for Nov. 1 arrival. This was $18.10/mt higher than the last feed wheat sale in South Korea on June 30, where Major Feed Group purchased the same volume of feed wheat at $214.80/mt CFR, plus $1.25/mt second port premium, for Nov. 30 arrival.
Prices have also been dropping following a GASC tender on July 21 for August 21-31 shipment when lower-than-expected offers were submitted. Offers were about $1 lower from the previous tender on July 14 while the payment terms changed. The tender held on July 14 was as per at sight letter of credit payment while the latest tender was on 180 days letter of credit payment which would suggest higher costs for sellers and therefore higher FOB prices.
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