Wheat

by Chris Lyddon
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The world wheat market has a bearish tone with supplies abundant and strong competition for unenthusiastic export markets. That and a strong dollar mean that the U.S. faces the prospects of record low shipments abroad in 2015-16.

“World wheat export prices remained weak in September, pressured by heavy supplies and subdued importer buying interest,” the International Grains Council (IGC) said in its Grain Market Report. “Strong export competition continued to be reflected in deals being reported at below market levels.

“Concerns about increasingly dry weather in Australia and adverse dryness for new crop planting in Russia and Ukraine contributed to price support toward the end of the month. Overall, the IGC GOI wheat sub-Index rose by a net 3% m/m, but stayed close to its lowest levels since mid-2010.”

In a commentary on the wheat market, David Sheppard, managing director of U.K. merchant Gleadell, jointly owned by ADM and InVivo, said that “global futures markets continue to defy the bearish fundamental supply position, which is supported by ongoing new crop concerns in the U.S., Black Sea regions and Australia.”

“Chicago and MATIF markets are overpriced against other cash wheat origins,” he said.

The IGC pointed out that there is an exception for higher quality wheat. “Attractively priced Black Sea wheats often feature in reported purchases,” it said. “However, values for higher protein milling wheat were underpinned by signs of tightening availabilities. Compared with the last Grain Market Report, 12.5% protein milling wheat quotations rose by about $2, to $184 FOB, with 11.5% protein at around $174 FOB.”

In the E.U. (France), milling wheat (11.5% protein) weakened by $3, to $181 FOB (Rouen).

“Improving confidence about production prospects helped to keep new crop APW values in Australia broadly steady for most of the month, but rising worries about dryness contributed to modest gains in late September, to $212 FOB (Adelaide),” the IGC said. “In the U.S., an increase in nearby FOB prices further worsened export competitiveness. As of Sept. 23, SRW at $217 FOB (Gulf) was around $43 higher than Black Sea 11.5% protein supplies and $36 above comparable E.U. (France) values.”

In its Wheat Outlook report, the USDA’s Economic Research Service put U.S. wheat exports for 2015-16 at 23 million tonnes, a cut in the forecast of 2 million and “largely on par with last year’s paltry exports.”

According to the USDA’s Foreign Agricultural Service, U.S. 2015-16 exports will be the lowest since 1971-72.

“The main reasons for lower U.S. export prospects this month are increased wheat supplies in major competitors coupled with its own lower projected wheat output this year,” the ERS said. “Higher-than-expected wheat production and supplies in the main wheat exporting countries of Australia, Canada, E.U., and Ukraine are expected to toughen the competition for U.S. exports all over the world.

“Most countries’ currencies have been depreciating vis-à-vis the U.S. dollar for some time (though in September, the U.S. dollar lost some of its value against the euro and Australian and Canadian dollars. A strong dollar creates a big price disadvantage for U.S. exports, effectively pricing them out of the market, and reducing the U.S. share in global wheat exports.”

Higher projected foreign 2015-16 wheat production for major exporters and larger beginning stocks boost world wheat supplies, the ERS said. “With projected use unchanged, the already record-level ending stocks are increased further,” it said. “Global wheat trade is projected higher, and exports are expected to rise for Ukraine, Canada, Australia, the E.U., Russia and Kazakhstan. The U.S. remains priced out of most global wheat trade, with a further decline in its wheat export prospects.”

Currently, U.S. FOB prices are about $35 per tonne above both French and Black Sea wheat, FAS said in a report titled, “Grain: World Markets and Trade.”

“Russian and Ukrainian exports are forecast at record levels,” it said. “E.U. exports are projected to be the second highest on record. E.U. and Black Sea exports have displaced the United States as the primary supplier in many major importing countries in North Africa and the Middle East based on low prices as well as freight and logistical advantages.”

“Furthermore, the United States has recently lost market share in some traditional markets and the trend is expected to continue,” it said. “For example, Mexico has recently begun importing from France, Russia, and Ukraine. Compared to last year, U.S. export commitments to Mexico are down 27%.”

Additionally, U.S. market share in Nigeria declined from a five-year average of 76% to 43% last year as lower-priced Russian and E.U. supplies entered the market, it said. “U.S. export commitments to Nigeria are down 38% from last year, further dimming prospects for market share recovery,” it said.



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