World Grain - November 2016 - 20

GRAINMARKET REVIEW

Wheat
Weak tone remains, but quality
concerns send bullish message

Wheat monthly price
(in U.S. dollars per tonne)

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by Chris Lyddon
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Sep 2016

Aug 2016

Jul 2016

Jun 2016

May 2016

Apr 2016

Mar 2016

Feb 2016

Jan 2016

Dec 2015

Nov 2015

Oct 2015

Sep 2015

The world's wheat market remains in a bearish mindset with record
supplies. However, quality problems, or concerns about quality problems, in some of the biggest exporters have injected a more bullish tone
to some sections of the market.
"World wheat export prices continued to have a generally weak tone
during September, pressured by record global supplies," the International Grains Council (IGC) said in its Grain Market Report. "However,
with uncertainty about quality problems in harvests spreading to more
areas, including Canada and Australia, market sentiment was comparatively more bullish for higher grade milling wheats."
The IGC report also said that the IGC GOI wheat sub-index was little
changed from a month earlier, at close to the lowest levels in 10 years.
"Late August price falls saw U.S. HRW values become increasingly attractive relative to comparable supplies at other origins, but
Black Sea prices soon regained the competitive edge in early September," the IGC said. "With harvesting in the region nearing completion, Black Sea milling wheat export prices posted a net decline of
U.S.$5 m/m, to U.S.$169 FOB."
In the U.S., Chicago SRW futures traded at 10-year lows at times,
weighed by generally bearish fundamentals, the IGC said.
"However, fresh news was often light, with values frequently responding to movements in other commodities and currencies," the agency noted. "Minneapolis-based spring wheat futures were underpinned
by tight global supplies of good quality milling wheat and by strong
early-season export demand for U.S. supplies. While investors at the
Chicago and Kansas City winter wheat exchanges maintained heavy net
short positions (signaling expectations for weak prices), traders in Minneapolis moved to a net long."
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by limited good quality supplies, particularly in France, and slow farmer
selling, the IGC said.
"However, export quotations remained comparatively weak under
pressure from strong competition from other global suppliers," the
IGC noted.
New crop export prices in Australia and Argentina were pressured by
favorable crop prospects, it said.
"Egypt's decision to impose zero tolerance for ergot resulted in a
number of shipments of E.U. and Black Sea wheat being held at ports
of origin," the IGC said. "Following the cancellation of a number of
tenders owing to a lack of offers from traders, a 0.05% level of ergot
tolerance was reinstated on Sept. 21."
In its Agri-Commodities Monthly for October, Rabobank largely
maintained its forecast for wheat, despite recent strength in shortterm demand, what it called currency vagaries and shifts in speculative positioning.

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

"Despite these bullish factors, there is no escaping the fundamental
picture for wheat, which shows few signals of a short-term sustained
recovery," Rabobank said.
The global market has failed to come away unscathed from recent
currency turmoil, the bank said, referring to the weakness of the euro,
as well as the much greater weakness against the U.S. dollar of the
British pound.
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futures on both sides of the Atlantic," Rabobank said. "In recent weeks,
Jordan, Syria, Algeria, South Korea and Saudi Arabia have all announced tenders to secure supplies, coupled with a comeback by Egypt's
GASC. Interestingly, international FOB price spreads narrowed considerably, bringing U.S. Gulf FOB into a more competitive position versus
last year, with reported inquiries from non-traditional importers.
"The vast weight of the northern hemisphere harvest has driven the
fund net position to record levels. As of Oct. 4, managed money held a
-151,417 lot net short, the largest on record, highlighting the speculative
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Millie Askew, analyst at Britain's AHDB Market Intelligence, said on
Oct. 17 that "global wheat markets have been buoyed this week on the
back of strong demand triggering short covering by investors. Although
this season global wheat production is set to hit a fourth consecutive year
of record levels, there have been numerous concerns over the availability of higher quality wheat."
France has had problems with quality and yield, she said, adding that
concerns also have been expressed over adverse weather in Australia.
"The rise in U.S. futures prices can be attributed to the increased demand for higher quality wheat, causing investors to short cover funds,"
she said. "While the U.K. market has followed the upward trend, the
weakening of sterling has also played a part in market movements."
Chris Lyddon is World Grain's European correspondent.
He may be contacted at: chris.lyddon@ntlworld.com.
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