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New reference point for wheat is 500 cent/bushel

01 October 20158 min reading
“December dated wheat price of Chicago Commodity Exchange managed to rise to 500 cent/bushel level again. 500 cent/bushel level as a reference point becomes prominent. Remaining on this level, purchases may not be very strong. Rather, it is estimated that there will be a horizontal market. Especially slowdown in China economy, strengthening dollar and record production estimates may cause interest selling and/or short positions increase.” Zafer ERGEZEN Futures and Commodity Market Specialist contact@zaferergezen.com Wheat price tried to exceed 500 cent/bushel level again in September. Wheat price which was closed at 622 dollar on 30 June declined to 463 cent/bushel level at the beginning of September. Thus, 25,6 percent value loss has been realized in two months. Value loss realized in such a short period and increase in production can be explained with fluctuations in currencies. In addition, it is seen that response purchases increased along with rising temperature in Russia and Europe and also some short positions were closed. Prices reaching 463 cent/bushel level on 4 September followed a rising trend. After a decline of 25,6 percent in a two months, response purchases were not surprise. However, prices’ declining below 500 cent/bushel level and response purchases’ remaining below this level were reflecting the concerns of investors for future. The growth that was realized with increasing response purchase was not sufficient to exceed 500 cent/bushel level at first. However when the effect of interest decision decreased wheat market turned to rising trend again. The main reason of rising prices is considered to be El Nino effect. El Nino is one of the strongest climatic phenomenon in the world. Due to drought in some places, heavy rain in some region, agricultural products are affected. Along with rising sea surface temperatures, air stream is affected; heat and rainfall in many places in the world are changed. We can see that production estimates decrease in projection reports to be announced. It is not right to explain price fluctuation realized in this period only with production amounts. Currency changes in global markets and economic concerns – especially China based – are effective on prices. Concerns about Chinese economy are an element affecting wheat demands because China meets 18 percent of global wheat production. At the same time, China keeps 40 percent of global wheat stocks. TURKEY KEEP DEMAND PRICES AT HIGH LEVELS Prices in Turkey continue its strong progress in comparison to global markets. Price fluctuations in global markets are not seen in domestic market. The most important reason of this is strong wheat demand. Especially increasing number of immigrants in Turkey and food support that Turkey provides for immigrants help prices remain high. Considering that the number of immigrants from Syria exceeding 2 million, rise in demand is considered normal. New demands in this amount increases respectively bread-flour-wheat demand. Wheat production of Turkey increases: As to estimates of Turkish Grain Board (TMO), wheat production is forecasted to reach 22,5 million tons with an increase of 18 percent in 2015 in comparison to the previous season. In 2011, 21 million tons of wheat was produced. More importantly, an efficient level of 288 kg was reached. This efficiency amount points out the highest efficiency amount. Intervene purchase price of Anatolian red hard bread wheat no: 2 was determined as 862 TL per ton in 2015. TMO is expected to pay 2 billion 750 million TL to producers in return of purchases. Most of the wheat purchases of TMO are for bread wheat. RISE IN EUROPE, RUSSIA AND UKRAINE SHOW A NEW RECORD According to the project report of US Department of Agriculture (USDA), wheat production increased 5,06 million ton in comparison to the previous month. By this means, production amount increased to 731,61 million tons. Rising in production estimates in the last two months reached to 9,65 million tons. Thus, the previous season’s production amount is exceeded. In 2014/15 season, it was expected that wheat production will be 725,24 million tons. It is remarkable that production increase reached to 72,89 million tons in comparison to 2012. In short, data show that production in 2015/16 season will be at record level. Considering that production in Turkey is expected to be 22,5 million tons, the size of the growth in comparison to 2012 can be understood more clearly. Nearly all of the growth in wheat production estimates is reasoned by high production expectations in Europe, Russia and Ukraine. Production amount is expected to increase thanks to suitable weather conditions. Especially the estimates for European production increased 6,31 million tons. Rising trend in end of stocks also continues. Projects for end of stocks in August reached to 226,56 million tons by increasing 5,09 million tons. Considering the projects of the last two months, accrual in wheat stocks reached to 24,16 million ton. The accrual in projects is reasoned by the growth realized in production. NORTH AFRICA AND MIDDLE EAST WILL BE ON TOP IN IMPORTS AGAIN It is understood that increase in production in Europe, Russia and Ukraine turn towards stocks instead of consumption. Although consumption increased a little bit increase in production estimates compensates that. It was seen that the slowdown in Chinese economy was influential in projects for previous month. Moreover, sharp rise in stocks is thought to be caused by the declination in China based demand. However, production based stock increase was realized in September. China that will consume 16 percent of global wheat production itself also keeps 40 percent of global wheat stocks. Thus, slowdown in Chinese economy is inevitable to reflect negatively upon global wheat demand. As to the data, the world’s biggest wheat producers will be European countries, China and India in the new season. These three regions realizing half of global wheat production are also the most wheat consuming regions. However, more consumption means more imports due to production. It is estimated that the highest wheat import will be realized in North Africa, Middle East and Southeast Asia again. THE HIGHEST STOCK LEVEL OF THE LAST 4 SEASONS International Grain Council (IGC) increased wheat production estimates to 727 million tons by increasing 7 million. In general, increase in estimates reflected on the data of IGC. End of stocks increased 5 million and reached to 211 million tons. In the last two months, there has been a serious increase. This caused by both increase in production and slowdown in demands. End of stocks show an increase of 40 million tons in comparison to 2012/13 season. FAO SEES INCREASES IN DEMANDS According to the data of Food and Agriculture Organization of United Nations (FAO), global wheat production is expected to be 728,4 million tons. This, shows an increase of 5 million ton in comparison to estimate sin July. In August, FAO estimates were not explained. It is noted that production increase is caused by suitable weather conditions in Australia, Europe, Russia and Ukraine. As to the estimates of FAO, end of stocks will increase to 201,8 million ton. As to the previous estimates, an increase of 4,3 million tons is expected. Total wheat demand will reach to 929,6 million ton. Despite the increase in production and stocks, FAO expects low production amount in comparison to the previous production season. In addition, despite the increase of 9 million tons in demands, it is forecasted that increase in stocks will be below 1 million ton. Considering this, it is not wrong to say that FAO is forecasting higher wheat demand this season in comparison to the previous year. In this aspect, there is a significant difference with the other institutions’ estimates. AVERAGE GLOBAL WHEAT PRODUCTION IS 729 MILLION TONS As a result, considering average estimates of these three institutions making global estimates for grain market, global wheat production is expected to be 729 million tons. According to the estimates of previous month, there is an increase of 9,02 million ton. End of stocks will reach to 213,12 million ton. It is estimated that increase in stocks will be 6,46 million ton in comparison to the previous month. In short, it is seen that while production increase is expected there is an increase in end of stocks. Considering prices, December dated wheat price of Chicago Commodity Exchange managed to rise to 500 cent/bushel level again. It will be closely followed if it will be on 500 cent/bushel level or not. In case of dropping below this level, selling pressure may increase. In short, 500 cent/bushel level as a reference point becomes prominent. Even remaining on this level, purchases may not be very strong. Rather, it is estimated that there will be a horizontal market. Especially slowdown in China economy, strengthening dollar and record production estimates may cause interest selling and/or short positions increase.
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