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Interest rate decisions will determine the direction of wheat prices

08 July 20158 min reading
“Due to the rise of dollar and low demands, there is selling pressure on prices Along with this, estimates that production amounts would decline support purchases. As a result, these different prices led indecision in the market… it is clear that the market is reluctant to transact without learning the effects of changes in foreign exchange rates. Thus, the size of fluctuation grows. In short, if central banks decide interest rates, the direction of wheat prices will be clear too. Zafer ERGEZEN Futures and Commodity Market Specialist contact@zaferergezen.com Wheat market has had active days again in May and June. New season projection reports that are announced in the same period every year determine the new trends for wheat prices. Considering the previous years, we see the same sharp price movements in the same period. This year a more different movement has taken place. Despite the projection reports, wheat prices fluctuate and still there is no trend. İmpact of this can be seen clearly in future contracts. Saying that prices which has sharp rise after production projections for the new season are announced turned back to starting point cannot be wrong. Despite the production estimates, prices had difficulty to remain above 540 cent/bushel. Sales, also, move around 500 cent/bushel. Due to the rise of dollar and low demands, there is selling pressure on prices. Along with this, estimates that production amounts would decline support purchases. As a result, these different prices led indecision in the market… It is clear that the market is reluctant to transact without learning the effects of changes in foreign exchange rates. Thus, the size of fluctuation grows. In short, if central banks decide interest rates, the direction of wheat prices will be clear too. “DESPITE THE EXPECTED INCREASE IN PRODUCTION, THE PRICE IS HIGH” Stability of the prices in Turkey has continued since last year. We observe that fluctuations in the price range decline and have horizontal movement. After the drought last year, prices moved upward quickly. Moreover, due to high prices, purchase prices weren’t announced. In this process, we see that prices didn’t loosen much. Horizontal market is still influential. However this year intervention purchase price was announced. Intervention purchase price for number-2 Anatolian red hard wheat was determined as 862 TL per ton in 2015. TMO determined the sale price of Anatolian red hard bread wheat for November as 960 TL/Ton. Pasta wheat was announced to be 976 TL/Ton. This year wheat production is expected to increase. According to the estimations of Turkish Grain Board (TMO) 2015 wheat production is expected to reach to 22,5 million tons with an increase of 18 percent in comparison to last year. Climate conditions becoming proper for grain production is considered as the reason for increase in production. Despite the expected increase in production, that the price is still high becomes an abnormality. At this point, demands in the market are assumed as strong. Especially that demands in Southern Anatolia is higher than the previous years is quite understandable. Particularly the demands from refugees who have come to Turkey due to conflicts in the region are expected to be high. According to the data of United Nations High Commissioner for Refugees (UNHCR), the number of people who have become refugees in Turkey to escape war in Syria since 26 May has reached to 1,76 million. “THERE HAS BEEN A SIGNIFICANT INCREASE IN COMPARISON TO 2012” In the Project report of USA Department of Agriculture, prepared for the new season, expected production amount has reached to 721,55 million tons by increasing 2,62 million tons in comparison to last year. While new data points a decrease of 4,77 million tons, it shows an increase of 63 million tons in comparison to 2012/13 season. End of period stocks will Show an increase of 1,9 million tons in comparison to previous season. Although prices are expected to increase along with the decrease in production, there has been a significant increase in comparison to 2012. Namely, it is possible to say that global production is in rise. In the new season, the biggest wheat producers will be European region, China and India. The production in these three regions will cover 51,37 percent of global production. Namely, half of the wheat production in the World will be realized by these three regions. These three regions are also the top wheat consumer ones. More production doesn’t mean more export as a result of production. It is expected that the top wheat importers will be North Africa, Middle East and South Eastern Asia. The import rate of these three regions will cover 41,68 percent of total import rate. When this data considered, a concentration is shown on production and consumption sides. Thus, checking data of these countries in order to understand supply and demand expectations is essential for investors. Chine has an impact on consumption side as usual. Wheat production of china is expected to be 121,5 million tons. This amount points a decline of 5,5 million tons in comparison to previous season. China will consume 16,8 percent of global production by itself. 35,3 percent of global wheat stocks are China’s. Therefore, any indecision in Chinese economy may influence global wheat demands negatively. We see that despite the increase in production, end of period stocks reduced to 202,4 million tons by decreasing 920 thousand tons according to the previous month’s estimates. Decrease in Russia, Ukraine and Middle East has an impact on this. İncrease both in production and in exports cause stocks to decrease. International Grain Council (IGC) increased its production estimate to 715 million tons with an increase of 10 million tons in comparison to the previous month. In short, there is a significant increase in comparison to the previous month. Weather conditions support the production and so estimates point increase. The most obvious increase is seen in USA in comparison to the previous year. Production increase in this country is expected to reach to 6,2 million tons. A similar production increase of 5,2 million tons is expected to be seen in China. End of period stocks will reach to 200 million tons by increasing 6 million tons in comparison to the previous month. This amount shows the same amount last year. İt means an increase of 29 million tons in comparison to 2012. Namely, it is higher than Turkey’s annual production. In short, data of IGC shows an upward, sharp recovery in comparison to the previous month. According to the estimates of UN Food and Agriculture Organization (FAO), global wheat production is expected to be 723,4 million tons. So there is an increase of 4,3 million tons in estimates in comparison to the previous month. Harvest amount is higher than expected in Africa and North America. An increase in production is expected due to these countries. Global wheat trade is expected to decrease in comparison to the previous month. According to the estimates of FAO, global wheat trade will decrease to 150 million tons. According to the reports of FAO, end of stocks are expected to reach 201,5 million tons by increasing 2,6 million tons in comparison to the previous month. As a result, when average estimate of three institutions making global projections about grain markets is considered (2014/15), global wheat production is expected to be 719,98 million tons in average. End of stocks will reach 201,3 million tons. Namely, institutions’ estimates for production and stocks are in rise. USA CENTRAL BANK’S INTEREST RATE DECISION INFLUENCE DOLLAR Wheat price for May in Chicago Stock Market is stuck in between 480 and 540 cent/bushel. Increase according to the firstly announced production estimates cause selling pressure to rise. In addition, changes in dollar are observed by the market closely. Specially USA Central Bank’s interest rate may influence the value of dollar directly. Any change in dollar is an important factor for commodity prices. Thus, it is vital for investors to consider this in their transactions. 480 and 540 cent/bushel is seen as a reference for wheat price. Remaining under or above this level may cause price movements to be sharp. This year the level of 540 cent/bushel is tried 4 times but it could not been exceeded. Sellers in this level become stronger. To exceed this level, there should be more positive data or expectations. 480 cent/bushel level is seen as the area where purchasers increase. Along with the increased value of dollar, the importance of this level became more prominent. When this level is reduced, we can see the sales would be in rise. While prices in abroad have lost value in a year, domestic prices are still the same; so domestic prices have risk factor.  
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