“The downtrend of the wheat prices for September in Chicago Mercantile Exchange still continues. The lowest levels observed in July will be monitored as a support level. If we get below these levels, the sales may speed up again. We are going to follow whether 450 cent/bushel level is passed or not for the upstream reactions." Zafer ERGEZEN Futures and Commodity Market Specialist contact@zaferergezen.com Wheat prices regressed due to harsh sales in June and continued to decrease in July. Yet, the decline seems to cut speed in July. At these levels, some short positions were partially closed. Wheat prices started to rise in the beginning of July. The buying process slightly continued until the new production estimates were declared. But then, with the announcement of the new production estimates, the selling pressure became effective again. We observed the reflection of high production estimates on the future deliveries. Although the period-end stocks decreased, the market focused on an increase in production forecasts. The increased production expectations in Russia and Ukraine led to an increase in the supply expectations of the market. Production expectations also increased across Europe. Due to the rainy weather in Europe, a concern about production occurred. In particular, there were rumours about a production decrease in France and Germany. Although the production expectations in France regressed, we saw an increase in production expectations across Europe. Likewise, there was an increase in production expectations in Australia. From this perspective, an increase in sales pressure seems normal. In addition to the production forecasts, economic developments also became effective in future deliveries. The economical concerns occurred after Brexit were also decreased. Nevertheless, the possibility of an increase in interest rates by central banks fades away and this led to a liquidity increase in the commodity markets. We already saw some reaction purchases in many commodities. Change in currency exchange rates was also felt in this period. STRONG DEMAND IN TURKEY CONTINUES The long-lasting strong demand in Turkey is still effective. Global markets experienced a hard fall in June and this partially affected the market in Turkey. In this period, the purchase price for the hard red bread wheat is determined as 910 liras per ton. The grain harvest in Turkey began in May. Soil Products Office (TMO) declared that the wheat production is expected to be 20.5 million tons with a decrease of 9.3 percent. In a period of about two years, wheat prices managed to stay above a certain level. Despite the increase in production, the prices remain high; this proves that this demand is not temporary but permanent. The increase in immigrant population could be the reason for this case. In this way, the consumption demand for wheat also increases. From this perspective, a decrease in production in the short and long term and a decline in demand are not expected. Thus, a sales pressure on the local wheat price is very unlikely. As a result, I strongly believe that the prices in Turkey will remain strong regardless of the international markets in 2016. CHINA HOLDS THE WORLD'S LARGEST WHEAT STOCK According to a report released by the U.S. Department of Agriculture (USDA), the production forecast increased by 7.68 million tons compared to the previous month. Thus, the expectation for a decrease in the previous season turned into an increase. This means that 4.46 million tons increase is expected in comparison to the last season. 738.51 million tons of wheat production is expected for the last year. Yet, there is a detail that needs attention: The increase in production forecasts for the last ten months became 15.61 million tons. The new season expectations included a decrease in production; yet in the last expectation report, this turned into an increase. Anyway, we already see its reflection on the future deliveries. In addition, the increase in production is still high with respect to 2012: The increase was 78.5 million tons. When we consider that Turkey’s annual average of wheat production is 20 million tons, the effect of this increase can be understood better. When we consider the future season expectations, we see that 5 million tons increase in production expectations is based on the USA. Moreover, there is an increase in production expectations in Russia and Europe. According to the same report, period-end stock forecasts regressed to 253.7 million tons by decreasing up to 4.4 million. In this way, the increase in wheat stocks became 30.56 million tons in the last eight months. Although there is a monthly decrease in the period-end stocks, a significant increase is expected in comparison to the previous season. However, the decrease of 5.5 million tons in the period-end stocks is due to the declining stocks of China. We already know that China is in stock sales for a while. But China will continue to be the country which holds most of the world wheat stocks. Stocks of wheat in China will reach to 112.5 million tons next season. This figure corresponds to the 44 percent of the world’s wheat stockpiles. North Africa, Southeast Asia and the Middle East will continue to be the largest wheat importers. European region (including Ukraine and Russia) is still the largest exporter. European region, China and India will actualise nearly half of the world's wheat production. WORLD WHEAT PRODUCTION IS EXPECTED TO BE 729 MILLION TONS International Grain Commission (IGC) expected that world wheat production will be 729 million tons during 2016-17 season. There is an increase of 7 million tons compared to the previous estimates. The decrease in production regressed to 5 million tons in comparison to the last year. Following the expectations for the new season, IGC raised its expectations by 18 million tons. Such a correction after the first estimates implies a serious deviation. In comparison to the previous month, period-end stocks increased by 3 million tons and became 226 million tons. Despite a decrease in production compared to the previous year, period-end stocks reached out to the highest level of the last five years. In short, we could imply that there is a significant decrease in demand. The period-end stocks which were about 170 million tons in 2012 will reach to 226 million tons in 2017. Accordingly, the increase in wheat stocks will be approximately 56 million tons. Briefly, the wheat supply will continue to be high in the world market. "THE PERIOD-END STOCKS WILL REACH TO 216.9 MILLION TONS" According to the estimates by World Food and Agriculture Organization (FAO) in the 2016-17 seasons, wheat production is expected to be increased by 8.1 million and become 732.1 million tons. Yet, the most striking fact is about the estimates on the stocks. FAO estimates that period-end stocks will rise to 216.9 million tons. The increase in the stock estimates for the last two months became 21.8 million tons. Such a change in the estimates in only two months led to the fluctuation in prices. The USA, European region and Russia are effective in the production. The production is expected to be high again in China and India; yet, production in Turkey can remain below expectations due to low rainfall in the country. DOWNTREND OF WHEAT PRICES CONTINUES As a result, when we consider the average global expectations by three agencies in grain markets, the world wheat production is expected to be 733.2 million tons. An increase of 7.59 tons is expected in comparison to the previous month. Period-end stocks will reach to 232.2 million tons. In short, 870 thousand tons increase is expected compared to the previous month. September futures on the Chicago Mercantile Exchange for wheat price downtrend still continue. The lowest levels observed in July will be monitored as a support level. If we get below these levels, the sales may speed up again. We are going to follow whether 450 cent/bushel level is passed or not for the upstream reactions. If this level is passed, we can observe actions towards a base formation. Yet, I think that the upstream reactions will be limited due to the increase in production estimates. Interest rate decisions and exchange rates affect liquidity and so have a significant impact on commodities. For this reason, we closely follow the announcements by the central banks and the new production estimates.