World Grain - March 2016 - 18

GRAINMARKET REVIEW

Wheat

U.S. wheat export totals
(in 1,000 tonnes)

40,000
35,000

Bearish tone persists as
production remains high

30,000

by Chris Lyddon

15,000

25,000
20,000

10,000

2015-16*

2014-15

2013-14

2012-13

2011-12

2010-11

2009-10

5,000
2008-09

High production around the world has given wheat a bearish tone,
slowed exports and moved it into competition with maize (corn).
Competition for markets is ferocious, say the experts
"A bearish tone persisted in world wheat export markets during
December and January, with sustained pressure from heavy nearby
supplies and strong export competition," the International Grains
Council (IGC) said in its Grain Market Report (GMR). "There was
mild underpinning in December from worries about 2016-17 crops
in some regions.
"However, prospects for global output were considered mostly
favorable by late January. Day-to-day movements were sometimes
triggered by global macroeconomic developments. Since the November GMR, the IGC GOI wheat sub-Index fell by a net 3%."
U.S. futures continued to be underpinned by a large net short position held by speculative funds, the IGC said. "This helped to keep U.S.
export prices at relatively high levels compared with other origins."
Amid heavy export availabilities, the steepest price declines were
in the E.U. and Black Sea region, with local currency weakness in the
latter contributing to falls in U.S. dollar-denominated values, it said.
³,Q$UJHQWLQDWKHUHPRYDORIH[SRUWWD[HVDQGÀRWDWLRQRIWKHFXUrency resulted in weaker fob values," it said. "Lower than normal
protein in some of the new crop underpinned prices for 12% protein
supplies, dropping by only about $4 since the last report, to $196 fob
(Up River). However, 10.5% protein was quoted at around $160 fob,
down by about $25 since early December and helping to stimulate
interest in purchases for feed, including recent shipments to the U.S."
At the U.K.'s AHDB (Agricultural and Horticultural Development
Board) Cereals & Oilseeds, the body which has replaced the former
HGCA (Home Grown Cereals Authority), analyst Helen Plant described a change in the dynamics of the wheat market.
"The spread between global wheat and maize futures prices has narrowed in recent weeks, and in some cases is now at its narrowest since
mid-2013," she said in its Prospects publication. "Global maize prices
have stayed relatively stable, while wheat prices have declined.
"Arguably, the movements in price relationships are down to the
level of comfort of global wheat supplies, rather than concern over
maize supplies. 2015-16 wheat harvests are now all but concluded,
assuring markets of record production and supply estimates."
The reduced premium for wheat over maize increases the attractiveness of wheat as a feed grain, potentially switching some feed
demand from maize to wheat, she said.
"As global feed usage of maize dwarfs that of wheat, even a relatively small shift from a maize perspective could help lessen the impact of record supplies in the global wheat market," she said. "There
are already indications of some demand switching, for instance the

*Projected
Source: U.S. Department of Agriculture

E.U. Commission increased feed usage of wheat and barley at the
expense of maize in its latest forecasts.
"Furthermore, the relative supply levels mean that the global
ZKHDW PDUNHW LV RQFH PRUH WDNLQJ D JUHDWHU LQÀXHQFH IURP PDL]H
While maize (and so total feed grain) supplies remain relatively comfortable, this is likely to keep both maize and wheat prices under
pressure. However, the concentration of maize production/exports
means the supply and demand situation for the commodity can alter
relatively quickly, and either add additional pressure (e.g. 2014-15)
or support (e.g. 2012-13) to wheat prices."
Rabobank, in its Agri Commodities Monthly, also described a
bearish picture.
"We have lowered our price forecast further, following continued
weak U.S. and E.U. exports, and a very well supplied global market,"
Rabobank said. "U.S. exports are dragging 18% behind last year and
could prove to be the exporter's lowest total marketing year since
1971-72. However, in our opinion, the latest downward revisions of
the USDA's U.S. export forecast still do not go far enough and will
trigger further reductions in subsequent reports.
"Ferocious competition abroad is dragging global wheat prices
lower, as weaker currencies have provided Black Sea and Argentinean exporters with a tremendous competitive advantage over the
U.S. on the global market."
The bank also noted that U.S. supplies have lost competitiveness
throughout much of South America. "This should remain in the foreseeable future, following Argentina's lower wheat export tariff," it said.
"In recent years, Brazilian wheat importers turned to U.S. HRW supplies after the Argentinean government began constricting exports."
It explained that while Brazil had imported around 1.5 million
tonnes by this time last year, imports now stood (mid-February) at
370,000, with no sign of growth.
Chris Lyddon is World Grain's European correspondent.
He may be contacted at: chris.lyddon@ntlworld.com.
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