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World Wheat Market in 2014/15

World Wheat Market in 2014/15

Abdolreza Abbassian Senior Economist, FAO

AMIS Secretary Abdolreza.Abbassian@fao.org

AMIS-Secretariat@fao.org

Primer Taller Internacional

de Intercambio de Experiencias sobre

6 November 2014

World Wheat Market in 2014/15

Presentation Outline

• Brief review of recent developments in international food prices

• Global supply and demand outlook for wheat in 2014/15

World Wheat Market in 2014/15

Food: Long-term price movements

World Wheat Market in 2014/15

• At 192.3 points, the FAO Food Price Index in October is down marginally from September - lowest level in four years!

• The Index started to decline since March- longest period of continuous falls since the late 1990s

World Wheat Market in 2014/15

• Cereals unchanged from Sept. but down 9% from Oct. 2013. Wheat and maize were up slightly - rice lower.

• Vegetable Oil gained 1%, supported by firmer palm oil quotations

• Dairy lost almost 2% - down over 26% from last year

• Meat fell 1% but still close to historical highs

• Sugar rose more than 4% after steep declines in previous months

World Wheat Market in 2014/15

Cereal supply and demand

At 2 522mt, world cereal production in 2014 would fractionally decline from the 2013 peak Global cereal utilization in 2014/15 to increase by 1.7%. Feed use, to expand by 2.6% Stocks to reach 624.7mt, up 8% from the start of the season and highest in 15 years

World Wheat Market in 2014/15

Global Wheat Market in 2014/15

World Wheat Market in 2014/15

Major Crops: conditions in key producing countries (as of Oct. 28th)

World Wheat Market in 2014/15

Wheat conditions in major producing countries (as of Oct. 28th)

World Wheat Market in 2014/15

World Wheat Supply and Demand

• Global wheat production in 2014 is forecast at 722.6mt, a marginal increase from the 2013 record output

• World wheat inventories are forecast to reach 192.2mt by the end of seasons in 2015, their highest level since 2003

World Wheat Market in 2014/15

Second year of record wheat production

• Record crop thanks to near perfect weather conditions

• But quality not so good due to wet weather at harvesting in North America and Western Europe

Data as of 6 Nov. 2014

World Wheat Market in 2014/15

Milling wheat against feed wheat: quality matters!

Protein

gap

World Wheat Market in 2014/15

Wheat utilization: feed use to increase in 2014/15, mostly in the EU because of large supplies

Wheat stocks: higher stocks this season in nearly all major producers but Canada

Wheat stock-to-use ratio increases to 26.9% in 2014/15 – highest in five years

World Wheat Market in 2014/15

Wheat in Latin America and Caribbean

Production (3-year-average) Chile S&D Balance

Good crop

prospects for

2014 after two

years of below

average

production

A bumper crop

thanks to over

20% expansion in

plantings – 10-

year high

production

Higher

production in

2014due to

increase in

plantings – but

still below 5-

year average

World Wheat Market in 2014/15

Lower wheat imports in 2014/15 (mostly in Egypt, Morocco, Tunisia, Brazil and Mexico)

Argentina, Russia and Ukraine export more but sharp falls in exports expected in the US and EU

Global Wheat Trade

World Wheat Market in 2014/15

Wheat trade in Latin America and Caribbean

Major Importers

(July/June)

Major Exporters (July/June)

World Wheat Market in 2014/15

15

20

25

30

35

40

45

50

55

60

2011 values 2012 values 2013 values 2014 values

US

Wh

eat

Exp

ort

Pric

es

Wh

eat

futu

res (

March

co

ntr

act)

Wheat Historical Volatility (30D)

Wheat Implied Volatility*

Wheat prices: lower and more stable

* Show the level of expected future volatility embedded in the option premiums observed in the CBOT’s options on futures markets.

5

15

25

35

45

55

65

75

85

2008 values 2012 values 2013 values 2014 values

Normal

range

World Wheat Market in 2014/15

Forward Curves: Back to normal (upward sloping or Contango) suggesting ample supply situation this season – buyers to take advantage of cheap wheat & maize nearby availability!

World Wheat Market in 2014/15

CFTC Commitment of Traders - Major Categories Net Length as % of Open Interest (28/10/14)

Managed money decreasing its net short wheat position

Managed money increasing its net long maize position

-40%

-20%

0%

20%

Okt 13 Dez 13 Feb 14 Apr 14 Jun 14 Aug 14 Okt 14

Commercials Swap Positions Managed Money

Sh

ort

(so

ld)

Lon

g (

bo

ug

ht)

Wheat

-40%

-20%

0%

20%

Okt.13 Dez.13 Feb.14 Apr.14 Jun.14 Aug.14 Okt.14

Commercials Swap Positions Managed Money

Maize

World Wheat Market in 2014/15

Beyond the Fundamentals

http://www.amis-outlook.org/indicators/prices/en/

World Wheat Market in 2014/15

Sliding currencies: Ukrainian Hryvnia (UAH) and Russian Rubles(RUB) to USD

40

50

60

70

80

90

100

110

Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14

RUB UAH

-37%

- 23%

January =100

World Wheat Market in 2014/15

Uncertainties ahead • Weather/plantings

– We had exceptionally good weather conditions in 2014 so could a return to “normal” weather result in lower production in 2015?

– Prices are well below previous years, will this affect 2015 plantings as farmers could shift to other (more profitable) crops?

• Geopolitical risks

– How will continued instability in the Middle-East and North Africa affect farm sectors and trade flows?

– Would accessing credits and lending constraints hamper plantings/yields in Ukraine and Russia?

• Economic conditions, exchange rates, oil price, etc.…

– Continued uncertainties over the health of world financial/economic systems

– Past periods of strong dollar corresponded to periods of falling commodity prices- could this trend continue? Impacts on emerging markets?

– Sharp decline in oil prices over the past few months - can all oil exporting countries weather the fall in their oil revenues?

World Wheat Market in 2014/15

• Supply: Good

• Demand: Stable (food, feed and industrial use)

• Trade: Contracting (in spite of lower prices)

• Stocks: Increasing to multi-year highs

• Prices: below last year

2014/15 Market Summary

World Wheat Market in 2014/15

More information in… Biannual Report

Monthly Report

On-line Price and Cereal S&D reports Monthly updates http://www.fao.org/worldfoodsituation