Eyes are on the new estimation report in the wheat market

04 March 20147 min reading
“We can see a movement to 655 cent/bushel level in March. Short term fluctuations can be experienced in the prices depending especially on the weather forecast. However; the most effective situation on the wheat market will be the new estimation reports to be announced.  Purchases in wheat transactions continued in February due to the cold weather in US. There is the concern that wheat production may get damaged especially in US. US’s position as one of the world’s largest wheat exporters increases this concern. We saw that short positions in the wheat transactions decreased. Also, purchases on all agricultural commodities reflected on the wheat transactions. The increase in the wheat prices in February exceeded 10%. Besides, the increase in the transaction volume points that investors changes their positions. Thus, the long-term downward trend is interrupted. To sum up, while the demand from North Africa is effective for European wheat; cold weather is seen as an effective factor on U.S. side. While these two factors are followed by the investors in March, future estimations of world wheat production will be effective on the markets. PRICES CONTINUE TO BE STRONG IN TURKEY Wheat prices in Turkey are experiencing a period that diverges from global markets with the drought concerns. It is stated that wheat production can get damaged especially due to the temperatures above average and dry weather. It is estimated that wheat won’t reach adequate water amount due to the lack of enough rain and snowfall during winter months. This means danger of drying for wheat seeds. Thus, there is the risk that wheat production would be under the expectations. However; before being pessimistic, the possible amount of loss in wheat production gains importance. It is estimated that the production loss of this year will be around 15% for now due to the inadequate rainfall. In this case, wheat production of Turkey is expected to be realized as 18.7 million tons. In other words, the loss is nearly 3.3 million tons compared to the previous year. Shortly, Turkey will have lost almost 2.6 billion TL due to the dry weather. As Turkey’s annual wheat consumption is approximately 18 million tons, any wheat deficit is not expected for now. When the imported annual amount is taken into consideration, the possible production loss is not expected to cause abnormal price fluctuations in the prices. However, it is important to make regulations on wheat import in advance. In case of delaying the import regulations and orders, the increase in the local wheat price may accelerate. Thus, while a decrease is experienced in the global markets; wheat prices in Turkey continue to be strong for now. USDA EXPECTS 55 MILLION-TON INCREASE Estimations on the production continue to be effective on the wheat market. U.S. Department of Agriculture (USDA) announced that wheat production in 2013/14 season is expected 55.55 million tons more than the previous year. This amount points a 770 thousand-ton decrease compared to the previous month but in spite of that, one-year increase almost equals to the wheat amount produced by U.S. all the year round. Shortly, wheat yield is expected to be at record levels. According to the report; world wheat production will be realized as 711.89 million tons. Together with that, total export estimations reached to 159,39 million tons by increasing 810 thousand tons. With the decrease in the production, end period stocks are expected to decline to 183.73 million tons by decreasing 1.67 million tons. However; when it is reviewed on annual basis, it is seen that stocks increased 7.89 million tons. In other words; despite the high increase in the production, changes in stocks is rather limited. The most important factor for this is the increase in the wheat demand. While the total wheat production amount in China is 122 million tons, total wheat consumption will be realized as 150.5 million tons. Supplying 17% of the world wheat production, China realized 18% of the wheat consumption by itself. China has 31% of the world wheat stocks. U.S.’s wheat production is expected as 57.96 million tons and the country will continue to be world’s largest wheat exporter with 31.98 million tons. While world wheat production increases, the decrease in U.S.’s wheat production draws attention. Current cold weather is seen as to be effective on that situation. Total wheat production in European Union, Canada and Australia is estimated to increase 23.32 million tons. High production estimations especially from Canada and Australia are effective on the wheat sales. IGC PROJECTS INCREASE IN PRODUCTION AND DECREASE IN THE CONSUMPTION International Grains Council (IGC) announced its estimation for world wheat production as 707 million tons by increasing 9 million tons compared to the previous estimation. Despite the strong wheat demand, high wheat yield becomes prominent as a factor that limits the increase. Together with that, wheat trade is projected to reach 147 million tons by increasing 5 million tons. Total grain trade is expected to exceed the level in 2011-2012 season. The increase expectation especially in Canada after the delays in the ongoing shipments due to the cold weather is remarkable. Despite the upward trend in the wheat demand, according to IGC’s estimations the consumption will decline to 691 million tons. After the decrease in the consumption, there will be a 7 million-ton increase in the end period stocks. As a result of this, end period stocks will reach to 188 million tons. IGC’s wheat price index is 230 by decreasing 8% on monthly basis. Whereas, last year’s wheat index was at 264 level. Despite the recent increase in demand, index is still seen as weak. ANOTHER PRODUCTION INCREASE ESTIMATION FROM FAO On its monthly report, The United Nations Food and Agriculture Organization (FAO) announced its estimation for world wheat production as 714.2 million tons by increasing 3,4 million tons. FAO estimates that end period wheat stocks will reach to 176.1 million tons in 2013/14 season. When we review the estimation reports in general; increased stocks are seen. The reason of that is pointed as that despite the high increase in the production, the consumption did not increase at the same speed with the consumption. FAO expects the world wheat trade to be realized at 143.5 million ton levels. This amount is below the expectations of IGC. The demand from Asia becomes prominent in these expectations. It is seen that the demand especially from Japan and China supports the prices. Besides, the demand from North Africa continues to its strong trend. WHEAT MARKET FOCUSED ON THE WEATHER CONDITIONS Consequently, when the estimations average of the three institutions that make global estimations for grain markets is taken into consideration; world wheat production is expected to be averagely 711.03 million tons. Thus, the average wheat production expectation reached to the highest level of the latest period. Last year, the average was realized as 656.7 million tons. In other words, the increase on annual basis is 8.27%. May futures wheat price at Chicago Mercantile Exchange, decreased 655 cent/bushel level after the high production estimations and lost value rapidly. We saw response purchases at 560 cent/bushel level in February. Despite an increase exceeding 10% in this period, prices are still below the important resistance levels. For a strong recovery period in wheat price, the price should be above 655 cent/bushel level. However; it is not expected to reach those levels without any increase in the production estimations. Weather conditions are seen as the most important factor that can provide increase in the short term. Cold weather causes concerns on U.S.’s wheat production for now. However; this factor has already started to be evaluated within the estimations. Production decreases from other regions will be more effective. Besides, being under the 655 cent/bushel level causes the technical aspects to be weak. As it is remembered, long term trend line passes through this level. Unexpected recovery in the production estimations may cause rapid value loss of the price again. However; we can see a movement to 655 cent/bushel level in March. Short term fluctuations can be experienced in the prices depending especially on the weather forecast. However; the most effective situation on the wheat market will be the new estimation reports to be announced. We can see changes on the prices depending on the changes in production estimations. The possibility of experiencing balanced slight upward trend is significantly high in this period.
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