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Australia Wheat Exports To Become Aggressive
Faced with a near-record crop this year, Australian wheat exporter AWB Ltd. may be forced to fight for a higher share of the Asian market in 2004, trade participants say. That is good news for Asian millers as aggressive Australian exports could help minimize the impact of higher freight rates from North America on milling margins in Asia. While not all millers may buy more Australian wheat as consumer preference is some markets are hard to change, lower freight rates from Australia and aggressive pricing by AWB could encourage more regional users to import Australian wheat, particularly for blending purposes, traders said. Australian wheat "can't totally replace U.S. wheat, but it could come in as material for blending (with other wheat origins). I think 20% of our spring wheat requirements could be supplied by Australia...if the price is right," said Manila-based Ric Pinca, a director at General Milling Corp. and an official of the Philippine Association of Flour Millers. The Philippines imports around 2.2 million metric tons of wheat a year for flour milling. Of that total, 65% is spring wheat and 35% is soft wheat. Currently, almost all of the soft wheat is sourced from the U.S., said Pinca. Spring wheat consists of 70% U.S. dark northern spring and 30% Canadian western red spring, he said. In more price conscious markets such as Indonesia, Australian wheat could take a lion's share of the market, accounting for about a half of all food- grade wheat imports, said Octovianus Geuther, industry policy compliance manager at the world's biggest flour miller, Bogasari Flour Mills. "Maybe we'll increase Australian wheat imports. But I'm not sure now, because our flour millers are still searching for cheaper wheat sources" to compete with aggressive flour imports, said Geuther, who is also the assistant executive director of the Indonesian Flour Millers Association. Australia is Indonesia's longtime and biggest wheat supplier, providing 46% of Indonesian wheat imports or 4.4 million tons in 2002. The share of Canadian and U.S. wheat in the Indonesian market was 12% and 9%, respectively. Australian monopoly wheat exporter AWB Ltd. said late last week it was holding its new crop wheat output forecast near 24 million tons. If realized, this would be way up from a drought-depleted 9.4 million tons produced in the last crop year ended March 31, 2003. With domestic demand estimated around 5 million-6 million tons, export availability should be 17 million-18 million tons this crop year. In September, the Australian Bureau of Agricultural and Resource Economics, or Abare, estimated wheat exports in the current fiscal year ending June 30, 2004 at 13.66 million tons. Australia exported 10.81 million tons of wheat last fiscal year, down from 16.41 million tons in fiscal 2001-02. LOWER PRICE TO BE KEY SELLING POINT FOR AUSTRALIA WHEAT "Depending on pricing, we can buy more Australian wheat. So far, the indication is that Australia has been quite aggressive...And freight has been helping the Australians as they are nearer to Asia," said a veteran grains trader based in Kuala Lumpur. Based on protein levels, Australian standard white and hard wheat are comparable with U.S. hard red winter wheat, while Australian premium hard wheat can be compared with U.S. dark northern spring wheat. Generally, Australian wheat is cheaper by a few dollars compared with U.S. wheat, said traders. Monday, U.S HRW with minimum 12.5%-13% protein was offered around US$164- $168 a ton, while dark northern spring with minimum 14% protein was offered around US$175-$180/ton, free on board for December 2003-January 2004 shipment. As AWB mostly sells wheat through private negotiations with importers, Australian prices aren't readily available in the market. Still, shipments from Australia have the benefit of benefit of lower freight costs compared with shipments from North America, said traders. Malaysia, for example, traditionally depends on Australia for more than half of its total food and feed wheat imports of 1.2 million tons annually, with U.S. wheat taking about 16% of the market only. Last year, alternative supplies from India and Eastern Europe grew after Australia's crop was hit by a severe drought. But with Indian exports curtailed indefinitely as the government stopped supplying wheat to exporters from state reserves amid lower production there and a poor harvest in Eastern Europe, "Australia should be able to get back its market share in Malaysia," said the trader in Kuala Lumpur. AWB said earlier it plans to raise exports to Asia to about 60% of its total exports from 40% now. The plans include gaining a higher share in markets such as Vietnam, the Philippines, Thailand and Taiwan. Australia and Thailand will sign a free trade agreement next year that will eliminate Thai tariffs on wheat and grains. Without duties, Australian wheat exports are expected to increase from the 250,000-300,000 tons supplied to Thailand now. Australia currently has a 40% share of the Thai market. NOT ALL BUYERS WILL BE LOOKING AT LOWER PRICES ALONE While many Asian buyers will be motivated by lower prices, there are markets in which importers may find it difficult to change consumer preferences. "We buy based on domestic demand. That's difficult to change," said a Tokyo-based official from Japan's Food Department under the Ministry of Agriculture, Forestry and Fisheries, which buys wheat on behalf of flour millers. According to Finance Ministry statistics, Japan imported 5.9 million tons of wheat for food in the year ending March 31, 2003, of which 56% was from the U.S, 24% from Canada and 19% from Australia. Wheat of different origins is used for different food-processing purposes and consumer preference are sometimes inflexible, making it difficult for North Asian millers to switch origins. "Changing origins is not easy if the final consumer doesn't like the change. It's a consumer's market," an official from a South Korean flour miller said. In 2002, South Korea imported 2.39 million tons of wheat for flour, and more than half of imports were from the U.S., while another 40% came from Australia. In Taiwan, for example, where higher consumer incomes make price a less important issue, AWB is pushing hard to increase its market share. AWB officials are scheduled this week to meet Taiwanese flour millers who buy around 1 million tons of U.S. wheat a year. "AWB will come to visit us. At this point, we don't know whether we'll buy more Australian wheat," said an official from Taiwan Flour Millers Association, adding that this year, Taiwan bought only one 32,150-ton cargo of Australian wheat.
MGR Archive 6.11.2003
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