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Wheat is affected with the changes in global market

02 March 20157 min reading
"During the first week of February, according to data released by the US Ministry of Agriculture, wheat exports per week exceeded 500 thousand tons. It can be suggested as a negative point that the volume of transactions also increased during sales. The appreciation of the US dollar reduces the cost of global wheat, and thus prices. One of the other effective issues is that the liquidity in the market has decreased. " Zafer ERGEZEN Futures and Commodity Market Specialist contact@zaferergezen.com In the world wheat market, although response purchases occurred in February, sales accelerated towards the end of the month. With the rise in global production estimates, sales become effective. As I wrote earlier, it seems that the selling pressure has increased because of the continued appreciation in the dollar, the expectations that global liquidity will decrease, and an increase in production estimations. With the response purchases in the first half of February, a recovery was observed. According to data released by the US Ministry of Agriculture, wheat exports per week exceeded 500 thousand tons in the first part of February. It can be suggested as a negative point that the volume of transactions also increased during sales. Here we should note it again: while the US provides 16 percent of world wheat exports, it carries out only 7.6 percent of world wheat production. Countries other than the US and Canada provide 88 percent of the world's wheat production. Therefore, The appreciation of the US dollar reduces the cost of global wheat, and thus prices. One of the other effective issues is that the liquidity in the market has decreased: After the US Federal Reserve Banks (FED) has began to decrease monetary expansion, it seems liquidity in the markets has reduced and positions have been reconsidered. Thus, fundamental changes in global markets are also effective in the wheat transactions. While following the developments related to the production and weather, it will help the investors to take these points into consideration. "THE YEAR 2015 YEAR MAY BE CROP YEAR" And in Turkey, the price of wheat is partially consistent. Price fluctuations in commodity exchange is still low. Drought experienced in Turkey in 2014 hampered the decline in wheat prices. While since last year wheat prices fell almost all around the world, there is a horizontal movement in Turkey. However, the expectations are high for the new season in Turkey again. Although last year wheat didn’t flourish in the field in many regions of Turkey, this year there is a more positive picture. With the increases in precipitation, expectations for a high crop increase. In case of continuation of precipitation in the spring, wheat crop in Turkey in 2015 is expected to be higher than that in previous year. So after the drought in 2014, 2015 may be crop year. Thus, precipitation in the spring will be closely observed. PRODUCTION GROWTH CONTINUES According to the estimation report issued by the US Department of Agriculture (USDA) the amount of production grew 1.65 million tons compared to the previous month, and it increased to 725.03 million tons. Thus, the growth became 67.09 million tons compared to 2012. So global wheat production increased 10 percent compared to the year 2012. Although this figure seems low as a percentage, it is higher than the annual production of the US. Even if there are short-term fluctuations due to high production, long-term trend is expected to be downward. However, according to the first announced estimation report of 2014/15 season, there is an increase of 27.99 million tons. An increase of this amount is nearly three times more than the annual purchase of Egypt that is the world's largest importer. And such a high growth leads to an increase in the selling pressure. Argentina and Kazakhstan are effective in the increase in production in. It seems that positive expectations in these countries have increased. And with an increase of 1.85 million, the global period-end stocks rose to 197.85 million tons. Since demand growth is lower than the increase in production, period-end stocks continue to increase. Even if a movement in demand in February may occur, it can be reflected in the report estimates only in March. In this case, the possibility of a slight decline in period-end stocks in March increases. The increase in Canada, Australia, and Kazakhstan is effective in the increase of period-end stocks. As usual, China is leader in the part of consumption. China's wheat production is estimated to be 126 million tons. And its total consumption is expected to be 147 million tons. So China will consume 20 percent of the world wheat production alone. And 31.7 per cent of the world's wheat stocks is in the hands of China. Therefore, it can be expected that the slowdown in China's economy may have a negative impact on global wheat demand. But this expectation isn’t reflected in estimation reports. "4 MILLION TONS DECLINE IN CONSUMPTION " International Grain Commission (IGC), hasn’t changed the world wheat production estimations compared to the previous month (When this article written, February report hasn’t been published). Global wheat production is expected to be 717 million tons. There is a significant increase in Canada and Europe region. The most important issue in the estimation of the IGC is a decline of 4 million tons in the consumption. IGC estimates that world wheat consumption will decrease to 708 million tons. Thus, period-end stocks will increase 3 million compared to the previous year, and it will reach to 196 million tons. As a result, period-end estimations of USDA and IGC are equal. It is seen that restrictions on the export of wheat in Russia have effected IGC’s production estimations. The decrease in export in Russia will lead to an increase in freight from other countries. And the most significant candidates for that will be European countries and Kazakhstan. In the report, it is pointed out that the conditions of production in Turkey will be positive. And it coincides with the positive production expectations for 2015. RUSSIA’s DEFICIT SHALL BE MET BY OTHER COUNTRIES According to estimates of World Food and Agriculture Organization (FAO), world wheat production is expected to be 724.3 million tons. Thus, a decrease of 600 thousand tons has occurred compared to the previous month. The increase in cultivated areas in North America and the Near East is expected to meet the deficit in Russia. Although wheat trade from China has increased of 1 million tons, 2013/14 season is still under 6 million tons. While imports from Russia is expected to decrease, wheat purchases from Europe, India, and Kazakhstan are expected to increase. According to the report of the FAO, with a decrease of 400 thousand, period-end stocks will decline to 192.3 million tons compared to the previous month. As a result, considering the average of estimations of the three organizations that make estimations for the global grain market, the average of world wheat production is expected to be 722.11 million tons. This figure indicates an increase of 350 thousand tons compared to the previous month. And the period-end stocks will reach 195.4 million tons. Thus, it is seen that monthly estimations point out an increase in production and period-end stocks. FINAL SITUATION IN PRICES In Chicago Trade Exchange, price of May dated wheat was dealt at a critical level of 490 cents / bushel when this article written. Response can be expected from this level. But it is not expected to be a long-term response. In the event that this level is passed downward, sales will accelerate. This level was seen earlier in September 2014. Therefore it is seen as a reference point. And in Turkey, prices are expected to follow a downward trend. And 490 and 450 cents/ bushel levels for the price of May dated wheat stand out. And for now, I don’t expect that 540 cent/ bushel levels shall be passed in upward movements.
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