U.S. bets Canada's wheat pricing war unsustainable on Saudi

By Souhail Karam

RIYADH (Reuters) - Canadian wheat origins have so far managed to grab a pole position in supplying the Saudi market through aggressive pricing tactics, but such a policy can not be sustained in the long run, U.S. Wheat Associates said.

Saudi Arabia became the biggest addition in years to the global wheat buyside after it decided to gradually phase out wheat cultivation as of last year and up to 2016 to save water resources.

This means a lot for U.S. wheat farmers who face sagging exports amid ample global supplies of less-expensive wheat from other nations and comparatively higher U.S. shipping costs.

In its first import campaign, the Arab world's biggest economy imported 2.2 million tonnes of wheat, the biggest chunk of which was hard wheat of Canadian origins.

"Our immediate competitor is Canada... Their produce is similar to ours," Richard Prior, head of U.S. Wheat operations in the Middle East and North Africa, told Reuters.

"Canada's Board of Trade is a monopoly... They just look at U.S. prices and offer a discount regardless of how this affects the margin for Canadian farmers. The transparency of the U.S. market is working against us," Prior said.

"They (Canada) have decided that they want this market... They cannot sustain this policy for long," Prior said.

Prior was speaking on the sidelines of a seminar organized by the Saudi grains authority Grain Silos and Flour Mills Organization (GSFMO) and attended by the U.S. ambassador to Saudi Arabia.

The fact that price and protein content -- 14 percent -- are GSFMO's criteria of choice means there is little support for U.S. origins against rivals despite a softening in the U.S. dollar to which the Saudi riyal currency is pegged.

U.S. Wheat Associates hopes to provide GSFMO with technical support, such as onsite training services, to encourage it to consider more U.S. origins.

"U.S. wheat prices are higher than competitors... Shipping costs are high... We are putting focus on value... We look for benefits like delivery time and quality," Prior said.

U.S. wheat exporters managed to sell only 52,500 tonnes to GSFMO. "It was a Panamax cargo of hard red wheat," Prior said.

While there are no official figures on Saudi imports per origins, the U.S. export figure pales when compared to the latest single purchase by GSFMO of 550,000 tonnes of Canadian hard wheat in October.

Waleed al-Khariji, GSFMO's managing director, told the seminar that the kingdom would import an annual 3 million tonnes of up to 2016.

The United States exports about 26 million tonnes of wheat most of which is hard wheat, a popular buy for GSFMO this year.