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


* Australian farmers reluctant to sell new-crop wheat

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

* Australia new-crop exports running at around half usualpace

* Traders vulnerable to price swings, supply shocks

By Naveen Thukral and Colin Packham

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

Tighter supplies from Australia, the world's No.2 wheatexporter, would underpin global prices that have gained1.2 percent this week on growing international demand.

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

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

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

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

"I think in the next couple of weeks the interest amongsellers should increase and the transaction (with China) shouldtake place," said one trader in Western Australia, the country'stop wheat exporting state. He declined to be named as he is notauthorised to speak to media.

China, the world's biggest wheat producer and consumer, hasseen up to 20 million tonnes, or 16 percent, of its crop damagedby untimely rains, forcing the country to purchase large volumesfrom 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 growersare not selling anymore," said a Sydney-based trader.

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

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

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


Dry weather followed by frost-damage in Australia's easterngrain belt is likely to prompt lower production of high-proteinprime 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 becauseof the dry weather that we have seen in parts of New South Walesand Queensland but the volumes will be much lower," said aMelbourne-based analyst.

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

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

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

But the rest of the country is on track for bumper wheatproduction, with crops in the south and Western Australialooking good.

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

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

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