Wheat Consumers Must Get Used to Higher Prices, Welirang Says

Wheat consumers will have to get used to a “new price level” as importers pay more for the grain amid competition for U.S. supplies, according to an industry executive from Indonesia, Asia’s largest buyer. 

“Wheat prices in the world will still be going up,” because infrastructure in the U.S. is not adequate to immediately meet surging demand, Franciscus Welirang, chairman of the Flour Mills Association in Indonesia, said in an interview today. 

The U.S., the world’s largest wheat shipper, doesn’t have enough port capacity to move all the wheat ordered by importers after Russia, the world’s third-largest wheat grower last year, extended a ban on exports, Welirang said by phone from Jakarta. 

Buyers are rushing to secure supplies, causing ships to pile up at U.S. ports, said Welirang, a director at PT Indofood Sukses Makmur, Indonesia’s biggest maker of instant noodles. 

Wheat futures surged to $8.68 a bushel, the highest in almost two years, on Aug. 6, a day after Russia announced a ban on exports. The grain has jumped 74 percent from this year’s low on June 9, as importers sought alternative supplies after cheaper wheat from the Black Sea region began to dry up. 

Prices jumped 3.9 percent on Sept. 3 after Prime Minister Vladimir Putin said Russia will extend the ban until next year’s harvest, which is typically completed in November. The ban, imposed from Aug. 15 amid Russia’s worst drought in at least half a century, was originally set to lapse on Dec. 31. Russia accounted for 14 percent of global exports of wheat, flour and related products in the year through June 30.

Price Discussions

The United Nations Food Price Index surged in August to 175.9 points, the highest level since September 2008, as wheat prices jumped. That prompted the Food & Agriculture Organization to call an “extraordinary” meeting of policy makers on Sept. 24 in Rome to allow importing and exporting nations to discuss “appropriate reactions to the current market situation.” 

The “biscuit industry” may be among the worst affected in Indonesia, as it relies more on the low-protein wheat imported from the Black Sea region, the bulk of it supplied by Russia, Welirang said. 

Wheat prices are likely to sustain their rally in the fourth-quarter as the backlog of vessels carrying U.S. grain cargoes further tightens supplies, Welirang said. 

Importers in Indonesia have sought more supply from Australia, the U.S. and Canada as Russia’s share in the country’s wheat imports slumped to 3 percent in the first six months of this year, from 10 percent in the whole of last year, Welirang said, without citing volume.Source: Bloomberg