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The eye of world wheat market is on China, Egypt and Japan

13 September 20138 min reading
Zafer ERGEZEN Futures and Commodity Market Specialist It is seen that the selling pressure on forward prices has increased together with the predictions of high wheat harvest in 2013/14 season. Wheat prices have lost 24 % value after its highest level in January. However this selling pressure may decrease in September due to the start of wheat purchases of Japan from USA with the import demand from China and Egypt. According to the monthly prediction report published by U.S. Department of Agriculture (USDA); world wheat production of 2013/1 season has reached to 705,38 million tons by increasing 7,58 million tons compared to the previous month. This increase has also reached to 50,11 million tons compared to the previous year. Totally 7,27 million-ton harvest increase in Ukraine, Kazakhstan and European regions was an important factor in this increase. However, in spite of the increase in production, the decrease in year-end stocks is expected as 172,99 million tons with the increase of wheat consumption. While the global wheat production increases 26,4 million tons compared to the previous year, world wheat trade volume will reach to 287,83 million tons with 12,25 million-ton increase. It is predicted that USA will probably get the largest share of wheat trade again with 11 % rate. As world’s largest wheat producers, China and India will continue to keep their positions. In Turkey, wheat production is estimated to be 18 million tons. It is seen that this number is quite under the production expectations of Turkey. With this production amount, the yield per hectare will increase to 2,34 tons. When it is taken into consideration that European Region ensures 5,43 tons yield per hectare, it is understood that the full-production capacity of Turkey hasn’t been used properly. To sum up; the report of US. Department of Agriculture points out that high wheat harvest can be balanced with the demand. This situation indicates more balanced and horizontal wheat prices. In its monthly report, Food and Agriculture Organization of the United Nations (FAO) increased its world wheat production estimation to 704 million tons by raising 14,1 million tons compared to the previous year. Especially the wheat production in Kazakhstan, European Region, Russia and Ukraine is expected to contribute to the increase of world wheat production with 32,5 million-ton increase. FAO estimates that world wheat stocks will be realized around 169,5 million tons. This amount will be the lowest stock level since 2008. Far East is expected to keep its position of being the largest wheat producer of the world with 245,2 million-ton production. While the wheat production in Pakistan is estimated to reach 26,3 million tons, an increase in Far East wheat trade is expected. The wheat export from Far East is expected to be 9,03 million tons by increasing 42 % and the wheat import is expected to reach to 36,04 million tons with 3,3 % increase. International Grains Council (IGC), announced that world wheat production will reach to 687 million tons by increasing 33 million tons in 2013/14 season. The end-years stocks will be realized as 176 million tons. It is estimated that the increase in production will be met by China. While the stocks are predicted to decrease 5 million tons, global wheat trade is expected to decrease 139 million tons with a slight change. According to IGC data; wheat index decreased by 1 % compared to the previous year in spite of the increase in wheat demand from China. Lastly; IGC not only has the lowest wheat harvest prediction, but also the highest stock expectation. This indicates a view of a more sales-weighted futures. Consequently; when the estimation average of the three organizations that have made global predictions for grain markets is taken into consideration, world wheat production is expected to be average 698,8 million tons. The average of the last year was 656,7 million tons. The end-year average will be 172,83 million tons with a decrease of 837 thousand compared to the previous year. While world wheat production is expected to increase, unusually an increase in wheat stocks is estimated. Besides, it is seen that the increase in wheat demand from Far East and Egypt factor are effective on the predictions. When we look at the developments on the demand within this frame, we see that Egypt as the largest wheat importer of the world continues to wheat procurement tenders after the coup. The new Egypt administration has announced the wheat stocks to be increased to the level of 6,5 million tons. A wheat procurement of total 720 thousand tons already realized in July for 190 million $ via tenders. In August, 120 thousand tons of wheat has bought via tenders. While 60 % of the procurement was obtained from Romania, the rest was met from Ukraine. The average wheat price for these procurements was 250,93 Dollars excluding the shipment. It is said that nearly 20 million-ton wheat loss has been experienced in China due to the bad weather conditions. The wheat demand after this situation is seen to increase. While the wheat import of China has reached to 3,7 million tons, the total import is expected to reach to 9,5 million tons until the end of the year. This means new wheat import around 5,8 million tons. To compare shortly; the import amount that is expected from China until the end of the year will be much more than the wheat import that European Union will make throughout the whole year. When we look at Brazil that is an important wheat importer, it is stated that wheat production has been damaged from the cold weather. The total wheat production in the two largest states in Brazil is expected to 1,9 million tons. Being expected to import approximately 7,5 million tons of wheat, Brazil may import 8,5-9 million tons wheat as a result of these incidents. This can turn into an advantage for wheat from USA and forward prices. Japan has started to buy wheat from USA for the first time after 30 May. Due to the discovery of genetically modified wheat without authorization, japan stopped the wheat import from Oregon temporarily on 30 May. Japan is in the position of being the largest buyer of USA wheat. The wheat demand in USA as the world’s largest wheat exporter continues to increase. According to the weekly export data; the wheat export at the second half of August has increased % 30 compared to the previous year. According to the export data of US Department of Agriculture; the wheat export realized by USA for 2013/14 season has reached to 14,6 million tons in total. Thus, 40 % increase in export has realized compared to the previous year. Especially the demand from China and Brazil is effective on this export increase. December wheat forward price at Chicago Commodity Exchange has seen the level of 635,5 cent/bushel by decreasing due to the high production predictions in August. Thus, it has lost 24 % value from the highest level seen in January. According to the previous season; the large increase in wheat harvest has caused the wheat prices to decrease beginning from June. When we look at the 10-year period, we see that a breaking point for the wheat prices in June. Besides, the decreasing import amounts of the two wheat importer countries like Egypt and Japan has supported the decrease of the prices. Decrease of the wheat import of Egypt at the beginning of the year has caused decrease in value for the prices especially in Black Sea region. The fact that Japan as the largest US wheat buyer has decreased the import amounts after May has caused selling pressure on prices. 630-35 cent/bushel band can be a critical reference point for December wheat forward price. Being a support and resistance point many times, this level also stands out as the level of increasing 4-year trend line. Within this frame, we will follow whether the prices will be under 630-35 cent/bushel in September. The developments about the global wheat demand will come to the fore front more in this period. The wheat demand especially from China, Egypt and Japan can be effective on determining the directions of the markets. In this case, it gains importance that how much demand increase will balance the selling pressure of the high production. If the increasing wheat demand of China, Egypt and Japan helps the forward prices stay higher than 630-35 cent/bushel level, we can see that wheat prices in September will perform upward reaction movement. Otherwise the prices can continue to decrease to 570 cent/bushel level that is the next major support point.
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