World Grain - July 2016 - 20

GRAINMARKET REVIEW

Weather concerns trigger
price increases as northern
hemisphere harvest approaches
by Chris Lyddon

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The wheat market looks well supplied for 2016-17 and that
impression has tended to keep prices under pressure. However,
potentially damaging weather in some places has triggered price
increases as the northern hemisphere's harvest approaches.
"A mostly favorable outlook for world 2016-17 supplies weighed
on prices during May," the International Grains Council (IGC) said
in its Grain Market Report. "Pressure stemmed from record stocks as
well as upgraded production expectations in some areas. However,
tightening late-season supplies provided nearby support in the Black
Sea region, while solid export demand underpinned in the E.U."
"Overall, the IGC GOI wheat sub-Index weakened by 2% since the
last report and was down by 12% y/y," it said. "Dwindling supplies
lifted nearby export quotations in the Black Sea region, particularly
in Russia, but improving harvest prospects helped to maintain the
competitiveness of new crop values."
Old crop Black Sea milling wheat prices rose by $1, to $192
fob, with new season (July) at $180 fob, it said. Strong late-season
exports amid attractive prices buoyed values in the E.U. In France,
nearby dollar-denominated grade 1 quotations gained $3, to $175 fob
(Rouen), while new crop (July) was up by $4, to $178 fob.
U.S. futures continued to be underpinned by the large net short
position of funds, but improving harvest prospects, particularly for
HRW, weighed on overall sentiment, it continued.
"Since the last IGC Grain Market Report, U.S. Gulf export prices
for SRW weakened by $5, to $193 fob, while HRW dropped by $6,
to $194 fob; new season values were at around $190 fob and $194
fob, respectively," it said.
In its Agri Commodities Monthly report for June, Rabobank
highlighted weather concerns surrounding crops in the western E.U.
and the Black Sea, which would potentially impact quality and were
"spooking the funds."
It predicted very competitive cash market prices in the second half
of 2016, amid large exportable stocks.
"CBOT wheat price gains will remain limited by record supplies
through 2016-17, trending marginally higher on support from
outside markets, albeit below the current forward curve," the bank
said. "Early June saw sharp rallies across both E.U. and U.S. wheat
markets, as an exceptional growing season faced heavy rainfall
across the southern U.S. plains, the western E.U. and parts of Russia.
"The conditions, which potentially jeopardize grain quality,
spooked non-commercials to cover 41,110 lots up until June 14,
driving active CBOT July 2016 to touch 30-week highs before
correcting. Recent strength across the U.S. corn market has been
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corn in the next month."
Rabobank also noted that French and German wheat remains

U.S. dollars per tonne

Wheat

Wheat monthly price
200

No. 1 Hard Red Winter, ordinary protein, FOB Gulf of Mexico.
Source: World Bank

vulnerable to quality deterioration, ahead of the harvest in central
Europe which starts in mid-July. "There are early concerns of hot,
humid conditions heightening disease pressure and, consequently,
resulting in yield loss," it said.
"Russia and Ukraine both are expected to achieve good yield
and, therefore, Russian exports are forecast to exceed those of the
current season, while lower acreage in Ukraine will keep exports at
12 million tonnes, about 4 million tonnes below the current season."
It also noted that U.S. yields are now projected to reach a record, while
good autumn rainfall has given the Australian crop an excellent start.
The USDA's Economic Research Service, in its Wheat Outlook
report, quoted upward revisions to USDA production forecasts.
"Global wheat production in 2016-17 is projected to reach 730.8
million tonnes, up 3.8 million this month," it said. "With higher
projected wheat output in the United States (up 2.1 million tonnes),
foreign production is up 1.7 million tonnes to 674.3 million."
It explained that two major exporters - the E.U. and Russia - have
increased production prospects.
"Wheat output in Russia is projected 1 million tonnes higher to
64 million this month on higher spring wheat planted area," it said.
"Russia's winter wheat crop continues to enjoy favorable growing
conditions despite the heavy rain that fell at the end of May and
beginning of June in the south and central parts of European Russia.
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stages of wheat development."
The USDA's projection for the E.U. has been raised by 1 million
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and wet winter and spring until in May heavy rainfall hit in France,
Spain, Romania, and less so in Hungary," it said. "The duration and
timing of this event were different for these countries and had an uneven
effect that strongly depended on the stage of wheat crop development.
Excessive rains lasted nearly a month in France, with many key wheat
areas receiving twice as much precipitation as average."
The rain is seen as more likely to affect quality than yield.
Chris Lyddon is World Grain's European correspondent.
He may be contacted at: chris.lyddon@ntlworld.com.
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July 2016 / World Grain / www.World-Grain.com
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World Grain - July 2016

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