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Asian buyers pay more for cake wheat after US output falls

[CHICAGO] A decline in production of low-protein white wheat in the United States is forcing Asian importers to pay a premium for the variety mainly used in baking cakes and cookies even as global prices for the grain struggle around a four-month low.

In a recent deal, the product attracted higher prices than even top quality spring wheat with 14 per cent protein content as importers scrambled to book scarce supplies. "Japanese consumers can change to alternative origins for other varieties of wheat but white wheat has no substitute, said Nobuyuki Chino, a veteran grains trader who runs trading firm Continental Rice Corporation in Tokyo. "Irrespective of prices they have to import from the United States," Chino said.

Japan imports 600,000 tonnes a year of US white wheat, also known as western white. South Korea, Taiwan and Thailand are the other key importers of this variety in Asia.

Flour millers in Thailand paid US$330 a tonne, including cost and freight for western white wheat, US$278 a tonne for hard red winter and US$325 a tonne for spring wheat with 14 per cent protein content in a recent deal.

Japan is seeking 112,920 tonnes of food wheat from the United States and Canada in a tender that closes on Thursday.

White wheat typically contains 9.5 to 10.2 per cent protein, but adverse growing conditions in the past season yielded a crop with average protein closer to 11 per cent.

Rains ahead of harvest damaged some of the US crop, further tightening the exportable supply. "The higher protein and shorter crop has white wheat trading at near-record premiums to Chicago futures," said Bud Riedner, manager of McCoy Grain in Washington.

White wheat with a 10.5 per cent maximum protein has traded at as much as a US$1.25-per-bushel premium to white wheat with no protein specifications, traders said.

The higher prices for low-protein wheat come at a time when the benchmark Chicago futures hover near their lowest since early October on plentiful global supplies.

US growers produced a 172.8 million bushel soft white winter wheat crop in 2014, down 20 per cent from the previous year, according to the US Department of Agriculture. Farmers will begin harvesting the new crop in July. "The market's tried to widen the protein premiums, charging more and more for the low protein to try to force buyers to accept the higher protein that they have," said one US exporter who asked not to be named.

Buyers in South Korea and Taiwan, however, have issued a tender for western white wheat with a protein content as low as 8.5 to 9.5 per cent this season, he said.