Iran set to buy more grain; poor crop fuels stockpiling

Thu Apr 5, 2012 11:54am EDT

* Doubts about Pakistan wheat barter deal

* Import need for corn, vegetable oils seen

By Jonathan Saul and Michael Hogan

LONDON/HAMBURG, April 5 (Reuters) - Iran is at risk of a poor grain crop which could force it to look for more wheat imports in coming months as Western sanctions already disrupt its food imports, traders said on Thursday.

Iran bought wheat on international markets at a frantic pace in March, ordering a large part of its expected yearly requirement in a little over one month.

It paid a premium in non-dollar currencies to work around toughened sanctions.

Though food shipments are not targeted under Western sanctions aimed at Iran's disputed nuclear programme, financial measures have frozen Iranian firms out of much of the global banking system.

Its purchasing has trickled to a halt in the past week after it bought between 2.5 to 3 million tonnes on international markets, with some payments routed via Turkey to get around the banking embargo.

But more purchasing is expected given mounting signs of a poor crop and doubts about whether Pakistan can follow through with a mooted grain-for-oil barter deal.

"Faced with continued turmoil in its Middle East neighbourhood, the prospect of tightening sanctions, and perhaps even an attack on facilities linked to its nuclear programme, it would be surprising if the Iranian regime were not increasing its food stockpiles," J. Peter Pham, a director with U.S. think tank the Atlantic Council said.

Traders said it would just be a matter of time before Iran started major wheat buying again.

"They will be forced to purchase more wheat ... the vast majority of Iranian wheat areas have only received 25 to 75 percent of normal rainfall levels in the last 3 months. This is similar to the pattern of the 2007/08 where imports were eventually 8 million tonnes," one grain trader said.

Iran's harvest is approaching and the state purchasing agency GTC will want to see harvest results before making more purchases, traders said. The huge wave of recent purchases are also being processed.

There were seven dry bulk vessels anchored outside Bandar Imam Khomeini, one of Iran's largest grain terminals, AIS ship tracking data on Reuters showed on Thursday. That was down from 12 two weeks ago.

Three were larger ships known as panamaxes, which can carry around 60,000 tonnes of grains. In recent days, nine vessels including five panamax have left the port area, suggesting over 300,000 tonnes had been discharged.

PAKISTAN DEAL QUESTIONED

The International Grains Council this week raised its forecast for Iran's wheat imports in 2011/12 to 3.0 million tonnes, up from a forecast of 1.0 million.

"I believe they will be a buyer of 4-5 million tonnes for the 2012/13 marketing year in addition to purchases made this year," the trader said.

Doubts are also being expressed about a barter deal in which Pakistan agreed to supply a million tonnes of wheat to Iran.

"I think the (Pakistan) deal is not final yet and there are lot of possibilities that it will not happen until the banking side can be addressed," another trade source said. "The wheat is not likely to be the best quality."

Another trade source added: "Barter deals were announced with both India and Pakistan but both countries are notorious for slow decision-making and long negotiations on deals. If Iran gets enough wheat elsewhere it may dump the barter deals."

Sanctions are worsening an economic crisis which has caused rising prices, shortages of some goods and a collapse of the local currency while other countries in the Middle East are experiencing political and social unrest.

Both Israel, widely believed to be the Middle East's only nuclear power, and its main ally, the United States, have held out the prospect of military action against Iran if sanctions do not work. Iran has said it is enriching uranium for peaceful purposes.

"While the conventional wisdom is that an attack would result in a surge of Iranian nationalism ...if basic staples become scarce and the conditions of life became even more challenging for ordinary Iranians, it is just as likely that, after the initial burst of patriotism, there would be a cascade of recriminations on Ahmadinejad and the mullahs," the Atlantic Council's Pham said.

Kazakhstan on March 28 was reported to have started shipments of wheat in deals paid with cash in advance.

Turkish and Chinese involvement in payment for Iranian grain imports are also increasingly spoken of.

"We see enquiries from smaller Turkish companies who have been trying to buy in the open market on behalf of Iran and are acting as conduits and they are still able to get grain to Iran.

"But of course the cost for such deals is going up," a trader said.

Another said: "Iran is also working a lot through China which is helping them a lot they are also picking up stocks from the inland from Kazakhstan. They have smuggling areas on the Kurdish side of Iraq and a lot of smuggling is going to Iran from there."

Dealers said Iran may turn its attention to buying vegetable oils and animal feed grains in coming weeks.

"Most of the recent buying has been wheat but they have a large requirement for feeds and oilmeals and indications are their vegetable oil imports have not been enough," one broker said. (Editing by Veronica Brown and Jason Neely)

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