ASIAN flour millers are set to buy record volumes of wheat from Black Sea producers in 2018 as traditional supplier Australia faces a second year of drought and as demand continues to grow around the region, traders said.

Millers in Asia have in the past month or so booked up to 1 million tons of new-crop Black Sea wheat for shipments starting in August, two of the traders said, with a wave of similar deals expected to follow.

Surging Black Sea wheat sales to Asia threaten to curb Australia’s dominance in supplying the region, where appetite for wheat is climbing as an expanding middle class consumes more noodles, pizzas and cakes, as it moves away from rice.

“Even the large mills which were dedicated Australian customers are taking Black Sea cargoes because of the price spread and quality,” said one of the trade sources, based in Singapore.

“Wheat from Russia and Ukraine is getting better every year,” he said, declining to be identified.

Black Sea wheat with 11.5 percent protein is being traded around US$220-US$227 a ton, including cost and freight, compared with a similar variety of Australian wheat quoted at US$255-US$260 a ton. Mills are usually willing to pay a premium of about US$10-US$15 a ton for Australian wheat as it is typically seen as better quality.

Those prices come as Australian farmers are forced to plant wheat crops in some of the driest soil in years after scorching weather parched fields.

“It is very had to get back share once a market develops a taste for an alternative variety which is not just getting better in quality but is cheaper,” said a veteran grains trader in Singapore.

Indonesia, which is estimated to buy a record 12 million tons of wheat in 2018, is likely to take about half of that from Russia and Ukraine, the traders said. That would be almost double the roughly 3 million tons it bought from those countries last year and would make it Asia’s biggest importer of Black Sea wheat.

Other importers recently buying Russian and Ukrainian cargoes are Malaysia, Vietnam, India and Bangladesh, traders said.

Asian wheat importers bought 12.6 million tons of Black Sea wheat in 2017, up from 10.6 million tons the year before, according to Thomson Reuters Eikon agricultural flows data.

“Most modern mills can blend lower quality grains with higher quality and get the right end-product,” said a purchasing manager at one of Southeast Asia’s biggest flour mills.

Meanwhile, Australian wheat production could drop further from a decade-low of 21.2 million tons last year, piling further upwards pressure on grain from the country.

“The official forecast for 2018/19 is 23.7 million tons of wheat, but looking at the dryness in April-May, we could be producing just about 20 million tons,” said Ole Houe, director of advisory services at brokerage IKON Commodities in Sydney.

(SD-Agencies)