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Global wheat shortfall affects Bangladesh

Traders expect quick procurement decision

Inam Ahmed
The world wheat market is withering under a drought, and Bangladesh is starting to feel the heat.
Unseasonably hot weather has shrunk production in key wheat-producing countries such as Russia and Kazakhstan. Canada, one of the world's top wheat exporters, reports the lowest amount of cultivated acreage forthe grain since 1971.
The result: prices have surged to their highest level in more than a year, jumping 20.5 cents to $6.16 a bushel. The 3.5 percent increase sets the price at its highest since June 2009.
Bangladeshi importers usually look for low protein grains. Wheat with 10 to 10.5 percent protein content sells at a lower price. But now they are even finding it hard to book high protein content grain as commodity dealers find it not worthwhile to negotiate prices.
Bangladesh imported some 3.7 million tonnes of wheat last year.
Here is a snapped email exchange between a Bangladeshi importer and a supplier in Ukraine who said lower grade wheat is not available and premium wheat might be looked for.
Importer: Practically there is no price premium in the local market for higher protein wheat. I can try. What level you can maintain at this moment, and what is the suitable shipment period for lowest price?
Exporter: No reply.
Traders say unless the government makes a quick decision (within 5 days maximum) regarding procurement, it might have to pay higher prices as the market is on an upward curve. Many deals had to be foreclosed as importers could not match their bid prices with market prices.
Usually the government purchase committee takes about 3 weeks to a month to
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award a contract by which time international prices go beyond the quoted price.
The six contracts that were awarded last month were priced at $214, $219, $221, $238, $241 and $265 a tonne. But since international wheat price went up by about $70 to $80 in the last 25 days, many of these contracts might be defaulted.
Due to severe drought in Russia, Kazakhstan and parts of Ukraine, local importers might declare their contracts force majeure, a clause in contracts that frees parties from liability or obligation when extraordinary events or circumstances beyond the control of the parties, such as war, strike, riot, crime, flooding, earthquake, volcanic eruption, etc prevents them from fulfilling the obligation.
A quick purchase decision by a sub-committee should be in place to avert such price impact on procurement, grain traders point out.
Hot, dry weather in Russia's primary wheat producing region has raised concerns about the country's harvest this year, World-Grain, a prime grain information company, quoted MF Global, a commod-itybrokerofChicago.
The unfavourable weather could end up making Russia an importer of wheat this year, a stark turnaround from a year ago, MF Global said.
Russia and other former soviet republics like Kazakhstan accounted for 20 percent of the world's wheat exports last year, and so a drastic change in their production severely cuts into global supply.
"If China's com crop comes in below estimates, they will make a large purchase," said
Steven A Freed, vice-president of research, Archer Daniels Midland Investor Services Inc of Chicago. "This would push up the prices of corn, and soy and wheat prices would follow."
Reuters reported that Ukraine's government might limit food grain exports in the second half of the 2010-11 season to avoid domestic shortage in the wake of crop damage.
Frost and drought have destroyed about 1 million hectares of Ukrainian grain crops, and the government said the harvest could fall to 42 million tonnes in 2010, from 46 million in 2009 and 53.3 million in2008.
Canadian Wheat Board reported that unseeded farmland will be 18 percent higher than last year's, and production will be no more than 18.5 million tonnes compared to previous projection of 24.5 million tonnes.