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Commodities - MARKETS OUTLOOK
Commodities - MARKETS OUTLOOK
Commodities - MARKETS OUTLOOK
by John Buckley
CROP farmers anxiously watching prices fall to ever less remunerative levels have had further
unwelcome news over the past couple of months from yet higher cereal and oilseed crop
estimates across the Northern Hemisphere.
World wheat production has been raised from 731m to 745m tonnes and is now 10m over
even last years giant crop, according to the US Department of Agriculture. The move follows
combined increments to US, Russian, Ukrainian, Australian and Canadian production, far
outweighing a steep downward revision in the EUs prospects since mid-year (which may not be
the end of that story).
In a season of flat growth in world wheat trade the arena in which international value is
made even a prospective 8.7m tonne drop in Europes wheat export potential seems to be
getting swallowed up by the growing competition among its key rivals.
The USDA has also marked up consumption by 20m tonnes since mid-year, putting it some
27m over last years (gains mainly in the US, China and India). However, that fails to stop world
wheat surplus stocks rising from last years 241m to 249m tonnes their highest ever level.
The bellwether US wheat futures markets which started the season under the impression that
world output would decline this year - have responded by trading down to fresh 10-year lows,
shedding about 30% of its peak 2016 value at one point, before a partial bounce-back to a recent
23% net loss.
Prices might have stayed down or dropped further still if not for ongoing concerns about the
proportion of higher quality milling wheat in this years mix. Wet harvest weather has lowered
protein content of US hard red winter bread wheat its main export grade. Excessive rain is
also said to be causing some problems with vomitoxin and low proteins in Canada. French
wheat quality has been badly hit by the rains and floods that plagued its crop before and during
the harvest, affecting Hagberg falling numbers and other milling characteristics, if having less
dramatic impact on proteins, which should at least help disposal into feed outlets. German and
Baltic EU States have also encountered some problems with rain compromising harvest quality
while parts of Russia and Ukraine have seen similar weather problems. Russias crop is so large,
that its smaller proportion of milling wheat to feed may still exceed last years volume. Down
South, the Australian wheat crop, still a month or so away from harvest as we go to press, is said
to suffering some rain damage in New South Wales, its second most important exporting state.
This litany of crop problems is being reflected in larger than
usual premiums for better quality milling wheats over middling/
lower grades. Yet, such has been the descent in the market as a
whole, that even with that increment, some of the top wheats are
still trading at cheaper than usual levels.
In the USA, for example Dark Northern Spring wheat was
offered export (fob) terms for nearby shipments from $264 down
to $247 per tonnes last month much the same as at this time last
year and far cheaper than in the autumn of 2014. But thats a full
$50 premium over better quality (12.5% protein) Hard Red Winter
wheat which is itself trading a massive $37 over ordinary HRWs
(compared with a $10 differential this time last year). The higher
volume of lower quality HRW is meanwhile putting it at a discount
to usually cheaper soft red winter wheat on fob export markets.
This wider than usual quality split and the ensuing price
differential is likely to result in far larger than usual supplies of
wheat offered to the feed sector in direct competition with maize
and other coarse grains in the US, in Europe and on the worlds
export markets especially in Asia, where buyers can be sensitive
to relative wheat/maize pricing.
In the months ahead, these three factors will be key drivers
Operational safety
starts with
innovative thinking.
7-10-2016 12:53:06
2016
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