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The value increase in dollar decreases the value of commodities

09 October 20148 min reading
The sales that started with the production projections for the new season still continue. In an environment where production and stocks have increased this much, response movements remain limited. In parallel with the developments in the global economy, the start of gaining value of dollar causes price pressure for the entire commodities. Both the value increase in dollar and increase projections in the production amount may cause the possibility of that wheat price would decrease below 400-425 cent/bushel level. In the wheat market, the downward trend still continues. With the breaking of the support levels in September, harsh sales have occurred again. The increase in the production projections is effective on the decrease. There was a horizontal market in which response purchases were dominant at the beginning of September as the continuation August. However; with the increase of the production projections, it is also seen that sales have increased as well. There were response purchases and efforts of creating support for wheat price in August and at the beginning of September. The sales were accelerated especially when 545 cent/bushel level was passed downwardly. However, this level became a short-term significant support. It is seen that supports do not have much importance in the wheat market for now. Especially the fact that dollar has started to gain value again increases the sales pressure on the entire commodities. As the dollar is the reserve money, the price of the most of the commodities is calculated on dollar basis. Therefore, any change occurring in the value of the dollar is the factor affecting the commodity prices naturally. We saw the effect of this during September. Shortly, both the increasing production projections and gaining value of the dollar were effective on the decrease in the wheat market during September. WHEAT PRICES WOULD DECLINE IN TURKEY In Turkey, there is a situation contrary to the general market in the world. The prices still maintain the horizontal trend. Especially the production loss arising from the drought causes wheat prices to remain strong. The fact that Turkish Grain Board (TMO) has not presented wheat into the market with high amounts is another factor causing the prices to remain high. Regional production differences are effective on the fluctuating course of the prices. While the production is high in the Thrace Region, the effects of the drought are felt in Central Anatolia and Eastern regions. It is stated that the production loss arising from the drought would be over 20%. Due to this loss in the production, wheat import may exceed 5 million tons this year. The rapid decrease of the prices in the abroad would definitely affect the prices in Turkey soon or late. Therefore, investors had better be cautious on the increase expectations. If TMO accelerates the wheat sales to the market, we can see that the prices in Turkey will decrease. WORLD PRICES ARE BELOW THE SUPPORT LEVEL According to the projection report released by U.S. Department of Agriculture (USDA); wheat production amount increased 3,86 million tons compared to the previous month. Thus the production amount reached to 719,95 million tons. The increase compared to 2012is 61,79 million tons. This amount is more than annual production of U.S. The result of such an increase in sales pressure on the wheat price should be treated as normal. We have seen increase in the projections in each month since the release of the first report for the new season. As this trend continues, wheat has been realized below the support levels. With the increase in the production, another increase in the end period stocks is expected. End period stocks will increase top 196,38 million tons with an increase of 3,42 million tons. In other words, approximately 27% of the world wheat production is reserved for stocks. Increase in the stocks shows that production has increased more than the consumption. It was not much possible to see an upward trend in such a situation. However, the increase both in the production and the stocks also increases the concerns on the wheat market. These concerns have already been reflected on the prices. Europe and Ukraine caused this increase in the wheat production projections. While wheat production increased 3,1 million tons in the European Region, the production in Ukraine is expected to increase 2 million tons compared to the previous projections. There has been any change in other countries that may affect the markets. Northern Africa still holds the lead on the demand side. Import expectation of the Northern Africa reached to 23,95 million tons by increasing. Besides, there is an increase in the demand from Pakistan. However, the increase on the demand side is still limited. On the export side; we see Canada, European Countries and Ukraine. It is understood that increasing production triggered the exports in these countries. However, China still holds the lead alone on the consumption side as usual. China’s wheat consumption is projected to reach 124 million tons. In other words, China consumes 17% of the world wheat production alone. Thus, the slowing down in the Chinese economy will have adverse effect on the global wheat demand. Finally, it is expected to see increase in the wheat import of Turkey from Russia in parallel with the high increase in this country. AMOUNT OF PRODUCTION AND STOCKS INCREASES International Grains Commission (IGC) increased its world wheat production projection 4 million tons compared to the previous month. Thus, the global wheat production will reach to 717 million tons. With this, the production projections of USDA and IGC have come closer to each other. The differences between the projections of these two institutions were higher before. Despite the increase projections in the production, end period stocks are expected to remain at the same level with 195 million tons. Therefore, both production and end period projections of USDA and IGC are parallel to each other after a long time. The striking point in the projections of IGC is the 4-million increase in the production. Thus total consumption will reach to 959 million tons. According to the report of IGC; Europe, China and Russia are effective in the world production increase. There is production decrease in North America, Australia and Near Eastern Asia. End period stocks have reached to the highest level of the last five years. The stock increases in Europe, U.S. and Black Sea Region are effective in this increase. The increase in the production causes increase in the stocks as well. Consequently; when the projection averages of the two institutions making global projections in the grain markets are taken into consideration, world wheat production is expected to be 718,48 million tons averagely. This figure points 3,93 million tons of increase compared to the previous month. This increase seen in the averages shows that upward trend in the production is still high. We have seen the same trend since the first projection report released for the new season. After this increase in the production projections, the sales pressure in the futures transactions should be treated as normal. VALUE LOSS IN WHEAT IS OVER 30% December futures wheat price in the Chicago Mercantile Exchange has lost value over 30% since May. The sales that started with the production projections for the new season still continue. In an environment where production and stocks have increased this much, response movements remain limited. In parallel with the developments in the global economy, the start of gaining value of dollar causes price pressure for the entire commodities. Therefore we saw that sales pressure continued during September. This sales pressure may be expected to continue during November. Especially the fact that support levels were passed downwardly decreases the possibility of serious upward response. Both the value increase in dollar and increase projections in the production amount may cause the possibility of that wheat price would decrease below 400-425 cent/bushel level. Such a possibility points a very risky market for the investors. I do not expect a permanent wheat market over 500 cent/bushel level in the medium and long-term. The wheat market that has increased in value since 2006 is expected to return to the old price dynamics gradually. New positive projection reports may cause increase in the purchase. However; as long as these production amounts continue in the long-term, it is highly possible that the prices would decrease due to the reasons I stated above. The support point of the long-term trend is at 400-425 cent/bushel level. If the production and consumption expectations continue to remain so, a movement towards to 400-425 cent/bushel level can be seen.
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