June 14, 2012 / 4:41 PM / 6 years ago

UPDATE 3-China makes biggest U.S. SRW wheat buy since 2004

(Recasts, adds quotes, details, adds cash prices, updates
futures price)	
    * Largest buy since Jan 2004 as crop hit by drought, disease
    * Wheat likely for food use, not animal feed
    * Wheat imports could top 5 mln T this season
    * Corn imports not seen impacted by wheat buying

    By Karl Plume	
    CHICAGO, June 14 (Reuters) - China bought 110,000 tonnes of
U.S. soft red winter wheat, the U.S. government said on
Thursday, that country's largest single purchase of that class
of wheat in 8-1/2 years, which traders said signaled the start
of more sales there due to a smaller crop in that country.	
    The purchase by China, the top importer of U.S. soybeans and
a leading buyer of U.S. corn, surprised traders and helped rally
winter wheat futures at the Chicago Board of Trade as the
country mostly buys high-quality U.S. spring wheat.	
    The wheat will likely to be used for food in China and not
feed and that the country's hunger for corn from the United
States would remain robust, traders said.	
    "China's corn import program today is done more on an
economic basis, to build reserves. That program will continue as
the central government has already said that they plan on
building reserves back up to higher levels," said Shawn
McCambridge, analyst with Jefferies Bache.	
    China, the world's top wheat producer and consumer, may see
its first year-on-year decline in wheat production in a decade
following drought in a key wheat growing area and the spread of
yield-cutting disease. 	
    The current U.S. Department of Agriculture estimate for a
120-million-tonne Chinese wheat crop may be overstated by 10
million tonnes or more, trade sources said.	
    Crop losses could spur China to import up to 5 million
tonnes of wheat this season from all sources, double the current
USDA forecast for the 2012/13 season and up from 3 million
tonnes in 2011/12, traders said.	
    The origin of those imports will depend on prices and the
quality of available supplies, both of which currently favor
soft red winter wheat, they said.	
    "At the beginning they'll buy the cheapest price so if we
maintain these prices it's going to look good for SRW," said a
U.S. wheat trader.	
    "Just like in corn, they have a domestic price that's
substantially higher than the rest of the world so there's a
huge import margin," he said.	
    The average general wheat price in China was quoted at about
2,153 yuan, or about $340 per tonne, according to Reuters data.
    SRW wheat at the U.S. Gulf was offered at about $245 per
tonne, free on board. Including freight costs of around $45 to
$50 per tonne and any import duties charged to private buyers,
SRW is still cheaper than comparable Chinese domestic wheat. 	
    "It's not surprising that if they have a crop problem, or a
perceived crop problem, then they are going to buy the cheapest
wheat out there which today is soft red winter wheat," a U.S.
wheat exporter said.	
    Beijing in recent years has imported 1 million to 3 million
tonnes of wheat, but much of that was high-protein wheat such as
hard red spring wheat used for breads or for blending with
lower-grade domestic supplies. China also buys small volumes of
soft white wheat, which can be used to make noodles. 	
    Thursday's SRW sale was the largest since January 2004, when
China bought 970,000 tonnes in a single week, USDA data showed.	
    China has been stepping up its corn imports in recent years
as its demand for animal feed has outpaced domestic production,
although lofty corn prices have prompted feed wheat imports at
    Higher-grade food wheat may be imported this season to
replace aging grain in reserves, which could then be used for
animal feed, some trade sources said.	
    "My suspicion is that it underscores a greater need for
feedsuffs than we anticipated, but I wouldn't be reducing
estimated corn imports," said Dan Manternach, analyst with Doane
Advisory Services.	
    SRW wheat futures on the Chicago Board of Trade jumped by 3
to 4 cents a bushel, or about 0.5 percent, moments after the
sale was announced at 8:00 a.m. CDT (1300 GMT). Spot futures
 closed up 7-1/2 cents, or 1.2 percent, at $6.23-1/2 per
($1 = 6.3703 Chinese yuan)	
 (Additional reporting By Charles Abbott in Washington, editing
by Sofina Mirza-Reid, David Gregorio and Bob Burgdorfer)
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