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Decline expectation in wheat market and Chine Economy Period

05 August 20157 min reading
“We can say that wheat prices are on the horizontal band again. While there are concerns about production, it seems that there are also serious deteriorations about demands. Not only production and demand expectation but also exchange movements in glonal markets and especially China-based economic developments are effective on markets.” Zafer ERGEZEN Futures and Commodity Market Specialist contact@zaferergezen.com July wasn’t very positive for wheat. Rise which started at the end of June gave place to sales. Fluctuations in this period reached to 20 percent. Sharp fluctuations in such a short period cause serious uncertainty for investors. We can say that wheat prices are on the horizontal band again. While there are concerns about production, it seems that there are also serious deteriorations about demands. As I mentioned before, these months are that serious activities are seen in wheat market. Forecast reports for the new season determines the new price trends of wheat prices. However it is possible to say that this year’s price movements are more uncertain. At least, a price trend has not been formed yet. Price movements starting at the beginning of May and June became larger in July. Wheat price reduced below this band by not staying above 540 cent/bushel. Not only production and demand expectation but also exchange movements in global markets and especially China-based economic developments are effective on markets. US dollar’s gaining value creates a selling pressure on wheat price. Price advantage against regions like North Africa and Middle East where wheat demand is high can be lost. Thus, selling pressure on prices increases. In addition, concerns about Chinese economy influence wheat demand because China covers nearly 18 percent of global wheat production. 40 percent of global wheat stocks are in China. The concern that wheat stocks may be decreased when Chinese economy deteriorates is another factor creating selling pressure on prices. A selling pressure like this was seen in cotton market in the past. Finally, due to El Nino, estimates for wheat production are stated to change. Especially In Australia, there are concerns about that yields can be reduced. Due to hot weathers in Europe, all the expectations can be reduced also. However, a serious change is not seen in estimates. PRICES REDUCE IN TURKEY In Turkey, prices started to reduce. Although intervene purchase price was higher than the previous year, it seems that selling pressure increased. As prices were high due to the drought last year, intervene price was not announced. İntervene purchase price of Anatolian red hard bread wheat numbered 2 was determined as 862 TL per ton for 2015. TMO had determined the selling price of Anatolian red hard bread wheat as 960 TL/Ton in November. Wheat production increases in 2015. According to the estimates of Turkish Grain Board (TMO), wheat production is expected to reach 22,5 million tons with an increase of 18 percent in comparison to the previous year. Although wheat price is reduce in global markets last year, it remained high in Turkey. As a result an anomaly appeared; however this anomaly started to improve lately and local prices reduce. That the production increased this year is an important factor on this. While wheat prices reduce in the region including Turkey prices’ being more increased cannot be expected in the country. It is not possible to say that still the reduction is not very high. It is possible to say that together with the new season products, selling pressure increased. CHINESE ECONOMY DETERMINE THE MARKET According to estimation report announced by US Department of Agriculture (USDA), production amount increased 410 thousand tons in comparison to the previous month and increased to 721, 96 million tons. While the reduction is 5,18 million tons in comparison to the previous year, there is an increase of 64,02 million tons in comparison to 2012. There is a serious increase in end of stocks. Wheat stocks are expected to reach 219,81 million tons by increasing 17,41 million tons. This increase is caused by Chine. Estimates that wheat consumption would decrease in China influenced estimates negatively. As I mentioned before, along with the deterioration in Chinese economy, wheat demands are expected to reduce. It is estimated that wheat consumption in China is estimated to reduce to 116,5 million tons. This means 16,3 million ton decrease in comparison to the previous years. Thinking that the largest wheat import does not exceed 10 million tons, the size of decreased production can be comprehended properly. China will produce 16,8 percent of global wheat production itself. 35,3 of world stocks are owned by China. Thus, any slowdown in Chinese economy can inevitably reflect upon global wheat demand. The world’s biggest wheat producers will be Europe, China and India. Nearly half of the global wheat production will be realized in these regions. These three regions are also the most wheat consuming places. However, more consumption means more import due to production. North Africa, Middle East and southeastern Asia are the top wheat importers. IGC DECREASED ITS FORECAST 4 MILLION TONS International Grain Council (IGC) decreased its wheat production forecasts to 711 million tons by reducing it 4 million tons. Monthly fluctuations continue. Whereas, serious fluctuations are not expected after new season expectations for wheat production are announced. However, this year, due to weather conditions and fluctuations in global economies influence production estimates. End of stocks will reduce to 196 million tons by decreasing 4 million tons in comparison to the previous year. IGC expects decrease in end of stocks in the same rate with decrease in production. In another word, any change in demands is not expected. That there is no change in demands causes the prices to be more predictable. However, it should be stated that end of stocks should point to an increase of 25 million tons in 2012. FAO EXPECTS INCREASE IN CONSUMPTION According to the estimates of Food and Agriculture Organization (FAO), global wheat production will be 723,4 million tons. So there is no change in estimates in comparison to the previous month. It seems that FAO do not have many fluctuations in its monthly estimates. Along with this, the amount is higher than IGC and USDA’s. According to the estimates of FAO, end of stocks will reduce to 197,5 million tons. A decrease of 4 million tons is expected. As there is any change in production, it is possible to say that increase in stocks is reasoned by increase in demands. While consumption expectations of IGC and USDA, it is remarkable that FAO expects increase in consumption. İt is noted that decrease in stocks is reasoned by Europe, India and Indonesia. As a result, when average estimate of three institutions making projections for grain market is considered, global wheat production is expected to be 718, 77 million tons. There is a decrease of 1,19 million tons in comparison to the previous months’ estimates. End of stocks will also reach to 204,4 million tons. In another word, it is estimated that stocks will increase 3,14 million tons. In short, in comparison to the previous month, end of stock expectations increase, while decline in production expectations rises. REGRESSION PERIOD IN PRICES In Chicago Mercantile Exchange, wheat price for September has regressed to below 540 cent/bushel. Before exceeding this level, an upward trend is waited to be formed. Besides production estimates and weather forecasts, investors should follow exchange movements and economic developments closely because it is seen that fluctuations in wheat prices are not only reasoned by exchange and weather conditions but also by changes in dollar and economic development. Therefore, it will be beneficial for investors to consider these too in their transactions. The levels of 480 and 540 bushel seem to be reference for wheat prices. In case of being below or above these levels, fluctuations in prices can be seen. The level of 480 cent/bushel seems to be the point purchasers appear. If dollar continues to gain value, we may see that this level will be more prominent.
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