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Wheat market has its eye on the new season forecasts

04 May 20156 min reading
Wheat prices by March remained between 500 and 540 bushels in Chicago Stock Market. Upward or downward change of this level will determine the direction of the movement. Along with the positive data and expectations, it is possible to say that upside trend has increased. The element to increase the downward press can be the fact that incoming demand is not strong enough. Zafer ERGEZEN Futures and Commodity Market Specialist contact@zaferergezen.com In March, wheat prices tended to be recovered. The prices that regressed to 480 cent/bushel at the beginning of this month increased to 540 cent/bushel by recovering later. Forecasts for lower wheat production have become effective. Drought expectation in some parts of USA worries that the production will decrease in Europe played a role in regressing prices. Moreover in March, the new announcements of Federal Reserve Bank of USA (FED) caused the idea that interest rates-hike will not be realized immediately. After this announcement, purchases in a lot of commodities increased. Thus, the month closed with a positive trend. News supported the increase so a market with purchase trend seemed dominant. However, the level of 540 cent/bushel could not be exceeded. Along with the profit sales reasoned by this level, recovery continued up to the level of 500 cent/bushel. Positive news is expected for the market to continue the upward trend. Together with the production forecasts of the new season, a more active market can be observed in this period. EXPECTED YIELD INCREASE IN TURKEY CONTINUES While wheat prices have been regressing in the world since the last year, a steady market in Turkey stands out. Floatation price range has decreased in a considerable amount and the market seems to have sales in small scale and horizontal trends. Production is expected to increase in 2015 but there is no significant change in the prices. Turkish Grain Board’s (TMO) purchase policy will be effective on this. As you would remember, TMO did not announce a supported purchase price due to the high prices caused by the drought. The drought was effective in Turkey in 2014 but expectation for the new season is high. Although wheat did not become green in a lot of farms last year, this year the picture is more positive. Along with a rainy year, expectation about high wheat harvest potential is increasing. As the rainfall continues particularly in spring, it is expected that yields for wheat in Turkey will increase in 2015. AN INCREASE OF 10 PERCENT IN GLOBAL PRODUCTION According to the forecast report of US Department of Agriculture, production showed a decrease of 270 thousand tons and regressed to 724,76 million tons in comparison with the previous month. However, it increased by 66,82 million tons in comparison with 2012. In other words, global wheat production shows an increase of 10 percent in comparison with 2012. Although it seems low as percentage, it is higher than the annual production of USA. Briefly, expectations for a higher production continue. Moreover, there is an increase of 27,72 million tons, according to the forecast report firstly announced for 2014/15 season. Meanwhile, since the date production forecasts were announced, forecasts have increased much more than the production of Turkey. These changeable prices should be received as normal as a result of this changeable market. Brazil has been an important effect on the decrease of production forecasts in comparison with the previous month. Global end of stocks regressed to 197,71 million tons with a decrease of 140 thousand. Actually the reports do not show a significant change. However, no matter how low, it has psychological effect. Decrease in Australia, European Region and Northern Africa has impact on the decrease of end of stocks. Chine has an effect on the consumption as usual. Wheat production of China is expected to be 126 million tons. Total consumption is also expected to be 147 million tons. In other words, China will consume 20 percent of global wheat production by itself. 31,7 percent of global wheat stocks is kept by China as well. Thus, any slowdown in Chinese economy can affect the global wheat demand negatively. However, this possibility is not taken into consideration in the forecast reports. A DECREASE OF 10 MILLION IN FORECASTS FOR 2015/16 International Grain Council (IGC) announced the most important data. IGC announced its first expectations for the next season in March. According to these forecasts, global wheat production will regress to 709 million tons in 2015/16 season. This means a decrease of 10 million tons in comparison with the previous season. Expectations about that production will decrease in Canada, Australia and USA is effective on the forecasts of IGC. While expecting that consumption and wheat trade will be balanced, changes on end of stocks do not seem to be as significant as production. In the forecasts of IGC, end of stocks will regress to 196 million tons by decreasing 2 million in comparison with the previous season. The total consumption will reach to 711 million tons. Forecasts for 2014/15 season stayed as 719 million tons showing no variation in comparison with the previous month. However, end of stocks will increase 1 million tons. Thus, end of stocks are expected to reach to 198 million tons. PRODUCTION INCREASE IN CANADA AND AUSTRALIA According to the forecast of Food and Agriculture Organization (FAO), global wheat production will be 727,2 million tons in 2014/15 season. Thus, forecasts showed an increase of 2,9 million tons in comparison to the previous month. Wheat production is expected to increase in Canada and Australia. The highest increase rate in comparison with the previous year is expected to be seen in Argentina, Eastern Europe and Europe. Production amount is expected to be average particularly in Europe and Eastern Europe in the new season. According to the report of FAO, end of stocks will increase to 198,6 million tons by decreasing 6,3 million in comparison with the previous month. INCREASE IN PRODUCTION AND END OF STOCKS In conclusion, world wheat production is expected to be nearly 723,65 million tons (2014/15) when the average forecasts of three institution which make global forecasts about grain market considered. This amount shows an increase of 1,54 million tons in comparison to the previous month. End of stocks will reach to 198,1 million tons. This amount also shows an increase of 2,10 million tons in comparison to the previous month. Thus, monthly forecasts seem to show an increase in production and end of stocks. FINAL SITUATION IN THE STOCK MARKETS Wheat prices by March remained between 500 and 540 bushels in Chicago Stock Market. Upward or downward change of this level will determine the direction of the movement. Along with the positive data and expectations, it is possible to say that upside trend has increased. The element to increase the downward press can be the fact that incoming demand is not strong enough. Particularly in the chart of the contract by May, technical data points out the upside trend. When the forecasts of Agricultural Department of USA for the new season were announced in May, the direction of the trend is expected to be clear. Bushel levels as 500 and 480 cent/bushel become prominent in downward movements for wheat price by May. The level of 540 cent/bushel is expected to be exceeded in upside movements to strengthen the purchases.
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