“495, 505 and 518 cent/bushel levels will be followed respectively in upward price movements. In downward movement, 475-480 and 450-455 cent/bushel level remains prominent respectively. When this levels are reached, whether purchasers will appear again or not will determine the prices’ movement. High production expectations increase the estimate that selling pressure will become more efficient.”
Wheat market started April with sales. Although wheat sales are low and production expectations decreased production expectations with high yield caused sales pressure again. As a result of this sales pressure, wheat prices reduced to around 455 cent/bushel. I mentioned that 445-450 cent/bushel price gap is especially important in April. After wheat price has reduced above this level, response purchases started immediately. Therefore, wheat market saw purchases again when the prices decreased to 450 cent/bushel level. After this period, we saw a rapid increase trend in wheat prices. News about demands has been influenced on this increase. There was news that wheat demand would increase in India. As well as this, the news have arrived that the world’s largest wheat importer Egypt has recently made purchases. For a long time, the response of the market has been remaining limited to the news about demands. In addition, the results of April meeting of Federal Open Market Committee (FOMC) which determines the monetary policies of The US Federal Reserves (FED) have been announced. FED kept policy interests between 0.25 and 0.50 as expected. Along with the fact that FED did not change interests, we saw that the liquidity in the market turned towards asset purchases. We have seen that purchases in commodities increased while the prices were increasing. Currencies of developing countries started to increase in value. As a result, general asset prices increased. As I mentioned in my previous article, FED’s adopting a softer tone causes response purchases for commodity prices. Currencies of developing countries are recovering against dollar. As long as the liquidity remains in asset prices, we will continue to feel the effect of purchasing trends in commodity prices.
“INTENSE DEMANDS CONTINUE”
There is not a different view than in the previous months in Turkey too. We have had the same expectations for Turkey for a long time. Intense demands continue. Local prices which resist the decline in global markets react to the increase in global prices. It is estimated that wheat demand increased especially with the increase in number of refugees. As the local consumption is high, surplus production may decrease compared to the previous months. However, the production is expected to be high in Turkey this year too. According to the estimates of Turkish Grain Board (TMO), 2015 wheat production may reach 22.5 million tons with an increase of 18% compared to the previous year. In short, despite the record production levels in Turkey, due to the increased consumption, prices are also estimated to remain high. Since the prices were high, this year purchase price may not be announced by TMO. Any great change is expected in the policy for refugees in short term. Therefore, I estimate that prices in Turkey will remain high independent from international markets in 2016. As the global production estimates are not changed to a large extend, this expectation is growing stronger.
ESTIMATES INCREASED OF 10.8 MILLION TONS IN THE LAST 7 MONTHS
According to the forecast report published by United States Department of Agriculture (USDA), production amount increased 820 thousand tons compared to the previous month. Therefore, production amount increased to 733.14 million tons. Increase in the production forecast in the last seven months increased to 10.8 million tons. We had seen the effect of production increase in the last seven months as selling pressure in futures sale because according to the 2012, increase in production has reached at 74.04 million tons. Considering annual wheat production of Turkey is around 20 million tons, the effect of production increase can be understood more. It is normal that such an increase causes selling pressure on wheat prices independent from economic developments. Considering the last month’s estimates, we see that Europe-based production estimates have increased. Production estimates have also increased a little in Argentina. In general, there is not a great change compared to the previous month’s estimates. According to the same report, end of stock estimates increased to 239.26 million tons by increasing 1.67 million tons. So, increase amount in wheat stocks in the last seven months increased to 30.03 million tons. High increase in stocks despite to the limited increase in production is caused by the decrease in consumption. China-based wheat stocks estimates increased compared to the previous month. Decreased consumption despite the increase in import estimates increases stock estimates. At the same, stock estimates in North Africa also increases. That these two groups are among the largest wheat importers increases the worries about the demands. North Africa, South East Asia and Middle East will continue to be the largest wheat importers. Any change in demands or production is expected in these countries. European area (including Ukraine and Russia) remains the largest exporter. European area will share nearly the half of the wheat production in the world together with China and India. China will be the largest wheat consumer in the world again.
DECREASE IN DEMANDS ARE MORE THAN DECREASE IN PRODUCTION
International Grain Council (IGC) had already announced the first estimates for 2016-17 seasons. The early estimates show a decrease in production compared to the previous year. The new estimates in April also show an increase. IGC forecast the world wheat production to be 717 million tons. According to the estimates in the previous month, there is an increase of 4 million tons. There is also a decrease of 17 million tons compared to the previous year. End of stocks also increased 7 million and reached at 218 million tons compared to the previous month. Although production amount decreased significantly compared to the previous year, end of stocks remain at the highest level of the last five year. In short, decrease in demands is much more than the decrease in production. End of stocks which was 170 million tons in 2012 will increase to 218 million tons in 2017. So increase in wheat stocks will be 48 million tons. In this aspect, wheat supplies in the world wheat market will remain high. This verifies the worries how long possible upward movements will remain.
TOTAL WHEAT SUPPLY WILL DECREASE TO 917.2 MILLION TONS
United Nations Food and Agriculture Organization (FAO) announced its estimates for 2016-17 seasons. According to this report, a decrease is expected compared to the previous month. Global wheat production is expected to be around 712.7 million tons with a decrease of 20.3 million compared to the previous year. Production is expected to decrease in Russia and Ukraine due to dry air. Production is estimated to be low in Morocco and Europe compared to the previous year. Wheat yield is expected to be higher in China and India. According to the estimates of FAO, end of stocks will decrease 193, 7 million tons. A decrease of 10.8 million tons is expected compared to the previous season. Total wheat supply will decrease to 917.2 million tons.
As a result, considering the average estimates of the three institution making global forecasts for grain market, global wheat production is expected to be 720.95 million tons. A decrease of 12.75 million tons is expected compared to the previous month. End of stocks will also decrease to 216.99 million tons. In short, a decrease of 1.57 million ton is expected compared to the previous season.
In Chicago Board of Exchange, 485 cent/bushel level for July futures wheat price seems prominent at first. In case of remaining above this level, an upward movement can be expected. 495, 505 and 518 cent/bushel levels will be followed respectively in upward price movements. In downward movement, 475-480 and 450-455 cent/bushel level remains prominent respectively. When this levels are reached, whether purchasers will appear again or not will determine the prices’ movement. High production expectations increase the estimates that selling pressure will become more efficient. Along with this, that FED did not increase interests and cash inflow seen in most of the commodity markets in parallel with dollar’s losing value may cause the number of purchasers remain high contrary to the expectations. This spring weather may be expected to continue for a longer time. The size of increase will be determined through the new production estimates and the situation of dollar. So following the announcements of central banks and new production estimates is important for investors.