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Positive forecast reports may increase purchases

22 December 20148 min reading

One of the most discussed topics within last month was the weather conditions. The weather conditions especially in Russia, Australia and Brazil had an impact on the wheat market. And in the USA, the wheat quality has fallen short of the values of last year. There has been a demand for quality wheat in November. Thus, an increase in the demand for the European wheat has been observed.

  Zafer ERGEZEN Futures and Commodity Market Specialist contact@zaferergezen.com The purchase oriented course in the wheat transactions has shown its effect throughout November. Despite the fact that the first days of November had passed with profit sales, we have seen the effects of the decreased production forecasts. We have witnessed an increase above 15% following the bottom levels experienced in September. But closing up on the resistance levels, sales also increased. Forward contract prices of March had hard time keeping above the 560 cents/bushel level. We have seen the decrease in the short positions that have escalated to record high levels. Decrease in production was the main reason for the purchases in the wheat transactions. The demand especially for the USA wheat has stayed at a low level as well. The limit is still known to be limited. The weekly wheat exportation of the USA has regressed to the lowest levels of the year within November. We may interpret this as the effect of the USA dollars’ increase in value against foreign currencies on forward transactions and the demand. Particularly, the raise in the value of the USA dollar had increased the selling pressure on all commodities. One of the most discussed topics within last month was the weather conditions. The weather conditions especially in Russia, Australia and Brazil had an impact on the wheat market. And in the USA, the wheat quality has fallen short of the values of last year. There has been a demand for quality wheat in November. Thus, an increase in the demand for the European wheat has been observed. In brief, both the decrease in production forecast and the weather conditions had an impact on the purchases in the wheat market. STABILIZED WHEAT PRICES IN TURKEY Turkey was one of the, even the only country in which the wheat prices have stayed in a stabilized course. Since the date the new production forecasts have been published, the prices in Turkey have been following a horizontal course. November was of the same kind. While there had been a drop in the prices due to the worldwide increase in the production forecasts, the drought in Turkey has prevented a decrease in the wheat prices. Although the increase in importation prevents abnormal increases in prices, a certain level of demand prevents the decrease in prices and thus leads to a horizontal course of the prices. The dynamic course of the wheat prices is expected to maintain in December. Turkish Grain Board’s (TMO) decision not to supply great quantities of wheat to the market has an impact on the course of the prices. And this is another factor for the over-standing prices. There are regional production differences in the wheat prices in Turkey. Whereas the production in Thrace is high, the Inner Anatolia and Eastern Anatolia regions have suffered from the droughts. However this doesn’t affect the general course of the prices. The damage in the production caused by the drought is estimated to be above 20%. USDA DORECASTED DECREASE IN NOVEMBER According to the forecast report published by the U.S. Department of Agriculture (USDA); the amount of production has recorded a decrease of 1.26 million tons when compared with the last month and the amount of production dropped to the level of 719.86 million tons. Thus the increase was 61.7 million tons when compared with 2012, meaning that there is still a significant increase when compared with 2012. The increase of this multitude should be seen as a progress that causes decrease in the prices. There has been a forecast of decrease for the first time since the announcement of the new production forecasts. And the effects of this have prevailed throughout the month. It can be seen that especially the USA, Kazakhstan, North Africa and Australia has played a part in the decrease in the forecasts. The increase in the productions in the European Region continued in the November forecasts. The wheat production estimation in Europe reached 155.4 million tons with an increase of 1.42 million tons. While the production estimations in many countries remain unchanged or drop, the increase trend production in production in Europe still continues. Nonetheless, there is no increase on the demand side. In connection with this, the wheat stocks in Europe are estimated to reach 16.56 million tons. Experiencing decrease in demands parallel with the decrease in production is considered to be the reason for the increase in the year end stocks in the world. Year-end stocks have increased by 310 thousand and reached 192.9 million tons. Therefore the share the year end stocks have received from the production has expanded. The increase in production Australia plays a role in the increase of the year end stocks. A decrease in demands in general is foreseen and the export and consumption estimations are decreasing. There is 2.1 million tons drop in production originating from North Africa. The wheat exportation of Australia is expected to recede by 1 million tons when compared with the last month’s estimations. And no change in demand that could have an impact on the prices is expected in the other countries. On the consumption side, China is leading on its own as usual. The consumption in China is expected to reach 124 million tons. In other words, China will consume 17% of the world wheat production on its own. Thus, the recess in the Chinese economy can be expected to have an adverse effect on the global wheat demand. IGC AND FAO EXPECTATIONS INDICATE INCREASE International Grains Council (IGC) has increased its estimation regarding the global wheat production by 1 million tons when compared with the last month’s estimations. According to IGC, the global wheat production will reach 718 million tons. Thus, the production estimations of USDA and IGC have considerably come closer to each other. Despite the estimation of increase in production, IGC expects a recess to 193 million tons for the year-end stocks. The total consumption will reach 710 million tons according to the estimations of IGC. IGC has announced that it expects the wheat cultivation to proceed smoothly next year and estimates an increase by 1% regarding the fields where wheat is grown. The increase in consumption is maintains its strength. There is also increase in the prices of durum wheat due to the lack of demand. According to the estimations of the World Food and Agriculture Organization (FAO) global wheat production is expected to be 722.6 million tons. Thus there has been an increase of 4.1 million tons in the estimations of FOA from last month. The increase in production in Europe and Ukraine plays a part in this. In the event that the increase maintains this pace, the wheat production is expected to be at record high levels this year. According to report of FAO, the year-end stocks will fall to 192.2 million tons by a decrease of 200 thousand when compared with the last month. In conclusion, when the average of the estimations of the three organizations that make global estimations with regard to the grain market is taken into consideration, the world wheat production is expected to be an average of 720.15 million tons. This number indicates an increase by 1.28 million tons from last month. Despite the fact that IGC and FAO have increased their production estimations, USDA has decreased its estimations. And the year-end stock estimations seem to follow a parallel course. POSITIVE FORECAST MAY INCREASE PURCHASES The March dated price of wheat in the Chicago Mercantile Exchange has maintained its growth trend which started in October. The prices have reached the level of 560 cents/bushel. But this level is considered as a significant point of resistance. To be able to pass this level, the decrease in the production forecast may need to continue. Despite the decrease in the estimations, there is still a considerable level of production. As mentioned in the report by FAO, if the production stays at this level, we will witness a record high production. Therefore the increase trend is not expected to last long. The wheat market that has gained value since 2006 is expected to gradually return to its old price dynamics. The incoming positive projection reports may lead the purchases to increase. But as the high production estimations in the long-term still continue to prevail, it seems that the increase in selling pressure is a high possibility.
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