Sales Pressure on the Wheat Market

10 July 20147 min reading
“In Chicago Mercantile Exchange, December futures wheat price is dealt under selling pressure. Newly announced projection reports have not pointed a change. 610 cent/bushel level becomes prominent. Efforts of creating support for this level were experienced in June. However; if there is not any change on the projection reports and harvest expectations, it is possible that upward trends will only remain as response movement.” The sales that began together with the announcement of first projection data on 2014/15 season still continue. The effect of the new projection report is mostly felt especially in the wheat transactions. Besides, the effect of the tension between Ukraine and Russia on the wheat transactions is now limited. When the high production and stock expectations in the new season are taken as basis, it is seen that the upward movements in the prices remained as response movement. Especially consecutive declines in the futures transactions changed the expectations. The fact that how longer the sales pressure felt during June will continue depends on the data in the projection reports. It is obvious now that production will decrease in Turkey. The drought concerns especially at the beginning of this year were dominant in the wheat market. We have already seen that the prices are higher in Turkey while the wheat prices lose in value in the international market. Besides, the tension in the neighboring countries may contribute to the flour and wheat export of Turkey. Shortly as the demand is limited in Turkey, it is projected that wheat price will be stronger compared to the international markets. Nevertheless, import is also expected to increase. There may be increase in the import of especially high protein wheat. It would be good to evaluate the imports in advance for limiting the upward trend in the prices. Otherwise, it may be seen that the upward trend will continue in the local prices: especially when the overseas markets recover… EXPECTATION OF INCREASE IN WHEAT PRODUCTION When the projection report of U.S. Department of Agriculture on 2014/15 season is reviewed, it is seen that the increase trend in the production still continues. 4.58 million-ton increase is expected compared to the previous month. This amount is more than half of China’s import. In other words, there is a significant increase trend in the production. Even the drought concerns cannot prevent this. Whereas, the production expectations were much lower at the beginning of the year. Due to this high expectation in the production, there is no increase in the prices in Turkey. An increase is also expected in the stocks together with the increase in the production. However, the increase in the stocks is limited with the increase on the demand side. The increase in the stocks is expected to be 1,19 million tons. Stock amount has increased significantly compared to period two years ago. It is inevitable that a stock figure with such amount creates sales pressure on the wheat prices; it has been already seen that sales have increased. Shortly; while world wheat production reaches to 701,62 million tons in the projection report of this month, stock amount will be 188,61 million tons. As in every June, the expectations for the new season announced by U.S. Department of Agriculture determine the trend in the wheat prices. Due to the high production, a downward trend is estimated this year. If there is no increase on the demand side, this sales pressure can be estimated to continue. It is seen that there is increase in the production of China, India and Russia compared to the previous month. Increase in the production especially from China may point weakening on the demand side as China was expected to have an important role on China’s wheat import. However, these expectations have declined to 3 million tons. Despite the increase in the production in India, any change is expected at the export and stock level. To sum up, a balanced market is maintained in India. An increase in the export and stock level of Russia is seen together with the increased production. While some of the increase in the production is exported, some of it will be put on the stocks. Thus, it is estimated that prices will remain stable in Russia. In Ukraine, prices are expected to be balanced throughout the year. Of course, there can be delays in the deliveries due to the political tension in those countries. Shortly, the political risk still continues in this region. This is expected to affect the demand side as well. NORTHERN AFRICA MAY IMPORT 23,5 MILLION TONS OF WHEAT Northern Africa continues to direct the wheat demand. The wheat import to be made from this region is expected to be 23,5 million tons. This points such a figure that is four times higher than the closest competitor. Therefore, all eyes have turned to the countries like Egypt. The increase in the wheat import of Egypt especially after the military coup caused wheat market turning to this region. Consequently; despite the increase expectations in the world wheat production, it is seen that export and demand sides have not changed much. Thus, it is still expected that sales pressure will continue although it has decreased in the futures transactions. In other words, data of U.S. Department of Agriculture does not support the increase in the wheat prices yet. DROUGHT HAS HIT CANADA, U.S. AND TURKEY United Nations Food and Agriculture Organization (FAO) increased its world wheat projection to 702,7 million tons by increasing 1 million compared to the previous month. However, it is still 12,6 million tons lower than the previous year. The highest decrease is expected in Canada. As it is known, a decrease is expected this year after the record production in Canada in the last year. It is seen that this fact is included in the projection reports. In U.S., it is seen that the production is below the expectations due to the drought. Likewise, Turkey is another country affected from the drought. It is seen that production has significantly declined in Turkey due to the drought. China and India are seen as the main reason of increase in the production. It is stated that especially the rainfall in those countries enhances wheat production. Besides, the production increase in Russia and European Region draws attention. However; despite the increase on the demand side, there is not much change observed at the stock level. WHEAT PROUCTION PROJECTS INCREASED 2,79 MILLION TONS Consequently; when the projection average of the two institution making global projections on the grain markets is taken into consideration, it is expected that world wheat production will be 702,16 million tons averagely. This figure points 2,79 million-ton increase compared to the previous month. It is especially important that both institutions point China and India. This may mean that the demand in those countries will be weak throughout the year. The decline of the imports from China compared to the previous year and the fact that the record production gave its place to normal production in countries like Canada point sales pressure. We see that weather conditions have played an important role on the projections this year. It is seen that the drought concerns especially in U.S. and Turkey point low production. There can be fluctuations in the prices and the projections due to the drought and change in the weather temperatures. However, it is expected that high yield will create pressure on the prices and will limit the excessive upward trends. SALES PRESSURE ON THE WHEAT MARKET In Chicago Mercantile Exchange, December futures wheat price is dealt under selling pressure. Newly announced projection reports have not pointed a change. 610 cent/bushel level becomes prominent. Efforts of creating support for this level were experienced in June. However; if there is not any change on the projection reports and harvest expectations, it is possible that upward trends will only remain as response movement. A horizontal market is expected to be experienced in the countries that are affected from drought. June period is generally seen as the month in which trend direction for wheat prices is determined. If 610 cent/bushel level is passed downwardly, re-acceleration of the sales can be seen. Besides, it is possible that unexpected conditions in weather are used as a reason for response purchases. However, the general trend and forecast reports point a market with sales pressure. Thus, the reports to be announced newly will be followed closely.
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