Australia farmers hold back on wheat sales, hope for higher prices

August 30, 2013

* Australian farmers reluctant to sell new-crop wheat

* Expect crop damage on east coast, Chinese demand to drive up prices

* Australia new-crop exports running at around half usual pace

* Traders vulnerable to price swings, supply shocks

By Naveen Thukral and Colin Packham

SINGAPORE/SYDNEY, Aug 30 (Reuters) - Farmers in Australia are delaying new-crop wheat sales on expectations that crop-damage in the country's eastern grain belt and robust Chinese demand will drive prices higher.

Tighter supplies from Australia, the world's No.2 wheat exporter, would underpin global prices that have gained 1.2 percent this week on growing international demand.

The country's wheat exports are running at almost half the typical pace in the 2013/14 season, with just 2.5-3.0 million tonnes contracted for sale despite additional purchases this year by China, traders and industry officials said.

"Buyers from China and other parts of the world keep putting in bids, but none of the big guys are in a position to sell large volumes," said Ole Houe, an analyst at Sydney-based brokerage IKON Commodities.

"You can't go to growers today and buy 200,000 tonnes. Traders are not very keen on selling without having the physical wheat behind them."

Buyers from China, which has already bought 1.5 million tonnes of Australian wheat for shipment in early 2014, are in the market looking for 150,000 tonnes, traders said.

"I think in the next couple of weeks the interest among sellers should increase and the transaction (with China) should take place," said one trader in Western Australia, the country's top wheat exporting state. He declined to be named as he is not authorised to speak to media.

China, the world's biggest wheat producer and consumer, has seen up to 20 million tonnes, or 16 percent, of its crop damaged by untimely rains, forcing the country to purchase large volumes from the international market.

Traditional buyers of Australian wheat such as Indonesia, Japan, South Korea and Malaysia are also looking for cargoes.

"We have more demand than we have got supplies as growers are not selling anymore," said a Sydney-based trader.

"There is new business being done everyday for the new-crop but it is mainly in containers," he added. Shipping containers are typically used by the industry for moving small amounts of grain, while bulk vessels transport larger volumes.

Slow farmer selling has also left grain traders vulnerable to price swings and supply shocks in the event of crop-damage.

Traders have sold close to 3 million tonnes of Australian wheat but they have bought just 15 percent of that volume from farmers. In a typical year, traders would purchase 25-30 percent of what they had sold.



FROST DAMAGE

Dry weather followed by frost-damage in Australia's eastern grain belt is likely to prompt lower production of high-protein prime hard wheat this year, bolstering prices.

Australian prime hard wheat, similar to U.S. spring wheat, is mainly used to make all purpose flour and bread.

"Overall protein content this year should be higher because of the dry weather that we have seen in parts of New South Wales and Queensland but the volumes will be much lower," said a Melbourne-based analyst.

"We are looking at lower production, maybe around 1 million tonnes down from earlier estimates."

The country's eastern coast usually produces some 11-12 million tonnes of wheat, of which 5-6 million tonnes is exported with the rest used by domestic flour millers and animal feed producers.

As a result of the crop-damage on the east coast, Australian wheat is being quoted around $20-$40 a tonne above Chicago Board of Trade futures. Australian prices usually trade at par with U.S. futures at this time of the year.

But the rest of the country is on track for bumper wheat production, with crops in the south and Western Australia looking good.

Western Australia's wheat production is set to rise 25 percent in the 2013/14 year, with rains last month likely to boost output, CBH Group, the state's largest grain handler said on Wednesday.

Despite having the driest June on record, the state is expected to produce 7.5 million tonnes of the grain, up from around 6 million tonnes last year. (Reporting by Naveen Thukral; Editing by Joseph Radford)