the changing dynamics of the wheat and commodity markets...
TRANSCRIPT
11 |
The changing dynamics of the Wheat andCommodity Markets, Flow of Capital and FundamentalsSeptember 25, 2018
Ankush Bhandari
22 |
Disclaimer
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33 |
20/20: Markets in perspective
• Global GDP rates have been growing steadily
• 2 consecutive years of record soybean acreage in the U.S.
• Soy and corn in the U.S. have witnessed 5 consecutive years of
“above trend” yields
• U.S. Ethanol and meat production continued at record levels
• Imports of Soybean from China continued at a good pace
• Trading ranges have been small combined with prices at low-end of range
• Burdensome Wheat stocks in quantity
• Big carries have been the lure for the wheat speculator
44 |
How and Why did we get here?- 5 years of BIG production along with slower growth in demand has added ~100 MMT of stocks
136
178
195
219
244
257
274
0%
5%
10%
15%
20%
25%
30%
35%
40%
120
140
160
180
200
220
240
260
280
03/04 05/06 07/08 09/10 11/12 13/14 15/16 17/18 E
MM
T
World Wheat Ending Stocks
Stocks Stocks to use ratio
715728
736
752758
550
575
600
625
650
675
700
725
750
775
03/04 05/06 07/08 09/10 11/12 13/14 15/16 17/18 E
M
M
T
World Wheat Production
55 |
World acreage continues to expand- The 3, 2, & 1 Rule
Commodity 08/09 18/19 Chg
Soy 238 321 83
Corn 390 454 64
Wheat 554 536 (18)
527 514 533 537 524 536 554 557 536 546 533 543 548 552 549 542 536
340 350 359 358 370 396 390 388 405 426 444 452 452 446 462 453 454
201 219231 230 234 225 238 253 255 254 272 278 292 297 294 306 321
0
200
400
600
800
1000
1200
1400
02/03 04/05 06/07 08/09 10/11 12/13 14/15 16/17 18/19
m. acres. World Acreage
Wheat Corn Soy
66 |
The minimum support price for wheat continues to stay at elevated levels for farmers in India and China
14101490
17001760
19302040
2240
2360 2371 2360 23602300
1000
1200
1400
1600
1800
2000
2200
2400
2600
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Yuan/MT China Wheat MSP
850
10001080 1100
1170
12851350
14001450
15201625
1735
800900
100011001200130014001500160017001800
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Rs / QuintalIndia Wheat Minimum Support Price (MSP)
77 |
Increasing and high support prices help maintain acreage levels- Over the last 10 years the combined acreage for China & India has increased
by 3 m. hectares or nearly 8 m. acres
20
22
24
26
28
30
32
90/91 92/93 94/95 96/97 98/99 00/01 02/03 04/05 06/07 08/09 10/11 12/13 14/15 16/17E
M. H
A
China Wheat Acreage
22
23
24
25
26
27
28
29
30
31
32
90/91 92/93 94/95 96/97 98/99 00/01 02/03 04/05 06/07 08/09 10/11 12/13 14/15 16/17E
M. H
A
India Wheat Acreage
88 |
China: One policy to another- Corn + Wheat stocks DOWN 10 MMT
97111
127
136
111101
8061
0
50
100
150
200
250
92/93 94/95 96/97 98/99 00/01 02/03 04/05 06/07 08/09 10/11 12/13 14/15 16/17 18/19F
MM
T
China Corn + Wheat stocks
Wheat Corn
99 |
Wheat area has been FLAT while yield has “INCREASED” 22%- ONLY 1 out of last 10 years saw below trend yields
95
100
105
110
115
120
125
07/08 09/10 11/12 13/14 15/16 17/18 E
IND
EX (
'07
/08
=1
00
)
Index of World wheat
Yield
Area
1010 |
The growth story continues….!!!???- How will the below trend change due to the recent trade spat?
17 26 28 29 38 41 50 52 59 6070 78 83
93 94 94
1515 14 15
15 1313 12
12 1313
1415
13 14 16
2223 22 25
25 2324 24
23 25
2932
3537
45 45
0
20
40
60
80
100
120
140
160
03
/04
04
/05
05
/06
06
/07
07
/08
08
/09
09
/10
10
/11
11
/12
12
/13
13
/14
14
/15
15
/16
16
/17
17
/18
E
18
/19
F
M
M
T
Global Soybean imports
China European Union Rest of the World
1111 |
Recent trade spat has led to higher soybeans stocks while the drawdown in corn is led by China
105
131
123
109
128
143 141
122127
131
172
207210
228
194
157
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
100
110
120
130
140
150
160
170
180
190
200
210
220
230
240
03/0
4
04/0
5
05/0
6
06/0
7
07/0
8
08/0
9
09/1
0
10/1
1
11/1
2
12/1
3
13/1
4
14/1
5
15/1
6
16/1
7
17/1
8
18/1
9
Sto
ck
s t
o u
se
ra
tio
M
M
T
World Corn Ending Stocks
Ending stocks Stocks to use ratio
39
49
54
63
52
43
60
70
5456
62
78
80
97
95
108
0%
5%
10%
15%
20%
25%
30
40
50
60
70
80
90
100
110
03/0
4
04/0
5
05/0
6
06/0
7
07/0
8
08/0
9
09/1
0
10/1
1
11/1
2
12/1
3
13/1
4
14/1
5
15/1
6
16/1
7
17/1
8
18/1
9
M
M
T
World Soy Ending Stocks
Ending stocks Stocks to use
1212 |
World Meat consumption continues to grow led by poultry
0
50
100
150
200
250
300
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
20
12
20
14
20
16
Mill
ion
Met
ric
Ton
s
World Meat consumption
Poultry Beef Pork
1313 |
Per capita wheat consumption: Tale of many worlds
MENA: Middle east and North Africa
160
165
170
175
180
185
190
195
91/92 93/94 95/96 97/98 99/00 01/02 03/04 05/06 07/08 09/10 11/12 13/14 15/16 17/18E
Lbs
China Per Capita Wheat consumption
185
190
195
200
205
210
215
220
225
91/92 93/94 95/96 97/98 99/00 01/02 03/04 05/06 07/08 09/10 11/12 13/14 15/16 17/18E
Lbs
United States Per Capita Wheat consumption
400
405
410
415
420
425
430
91/92 93/94 95/96 97/98 99/00 01/02 03/04 05/06 07/08 09/10 11/12 13/14 15/16 17/18E
Lbs
MENA Per Capita Wheat consumption
1414 |
DEMAND/POLICY/PROFITABILITY
• DEMAND growth for Corn and Soybeans outpace Wheat helping SHIFT acres
– Meat vs. bread consumption
– Biofuels Mandate
• LOW or NO profitability for growing Wheat
• INCREASED levels of Minimum support prices provided by the 2 largest producers in the world
• REVIVAL of Russian acres and farm productivity along with subsidies (Fertilizer & Transportation)
– Yields UP 50% in last 10 years
• ELEVATED level of US Dollar
• US still remains not only the residual supplier, but also the High quality and specialty wheat exporter
1515 |
Key issues for the year ahead
• Continued usage of record crops
• Large Speculator fund length
• Wheat harvest in Southern hemisphere
• Chinese appetite for soybeans
• U.S. share of exports
• Acreage allocation amongst crops
• Value of U.S. Dollar
• Resolution of Trade war
1616 |
Year to date returnsBig moves in the various asset classes over the last 3 months
17% 2%
(1%) 10%
1,000
1,200
1,400
1,600
1,800
2,000
2,200
2,400
2,600
2,800
3,000
Jan
-10
Jul-
10
Jan
-11
Jul-
11
Jan
-12
Jul-
12
Jan
-13
Jul-
13
Jan
-14
Jul-
14
Jan
-15
Jul-
15
Jan
-16
Jul-
16
Jan
-17
Jul-
17
Jan
-18
Jul-
18
S&P 500 Index
70
75
80
85
90
95
100
105
Jan
-10
Jul-
10
Jan
-11
Jul-
11
Jan
-12
Jul-
12
Jan
-13
Jul-
13
Jan
-14
Jul-
14
Jan
-15
Jul-
15
Jan
-16
Jul-
16
Jan
-17
Jul-
17
Jan
-18
Jul-
18
$ Index
$20
$30
$40
$50
$60
$70
$80
$90
$100
$110
$120
Jan
-10
Jul-
10
Jan
-11
Jul-
11
Jan
-12
Jul-
12
Jan
-13
Jul-
13
Jan
-14
Jul-
14
Jan
-15
Jul-
15
Jan
-16
Jul-
16
Jan
-17
Jul-
17
Jan
-18
Jul-
18
$/bl Crude Oil
150
200
250
300
350
400
Jan
-10
Jul-
10
Jan
-11
Jul-
11
Jan
-12
Jul-
12
Jan
-13
Jul-
13
Jan
-14
Jul-
14
Jan
-15
Jul-
15
Jan
-16
Jul-
16
Jan
-17
Jul-
17
Jan
-18
Jul-
18
CRB Index
1717 |
Wheat exporter (U.S. competitor) currencies WEAKER
US$ Index DXY 1.9%
Euro EUR (1.9%)
Japanese Yen JPY 0.2%
Canadian CAD (2.6%)
Aussie $ AUD (6.6%)
Russian Ruble RUB (13.1%)
Ukraine Hrvynia UAH (2.6%)
Brazilian Real BRL (18.8%)
Mexican Peso MXN 4.4%
Argentine Peso ARS (51.3%)
Currency ETF
YTD Returns
1818 |
The large spec are SHORT corn, soy and wheat
400
500
600
700
800
900
1,000
J-0
6
J-0
7
J-0
8
J-0
9
J-1
0
J-1
1
J-1
2
J-1
3
J-1
4
J-1
5
J-1
6
J-1
7
J-1
8
# o
f co
ntr
acts
('0
00
)
C+S+W: Index Fund Length
(600)
(400)
(200)
0
200
400
600J-
06
J-0
7
J-0
8
J-0
9
J-1
0
J-1
1
J-1
2
J-1
3
J-1
4
J-1
5
J-1
6
J-1
7
J-1
8
# o
f co
ntr
acts
('0
00
)
C+S+W: Large Spec Fund Length
1919 |
Large Speculators are short wheat led by soft wheat
(200)
(150)
(100)
(50)
0
50
J-0
6
J-0
7
J-0
8
J-0
9
J-1
0
J-1
1
J-1
2
J-1
3
J-1
4
J-1
5
J-1
6
J-1
7
J-1
8
# o
f co
ntr
acts
CHICAGO WHT: Large Spec Fund Length
(60)
(40)
(20)
0
20
40
60
80
J-0
6
J-0
7
J-0
8
J-0
9
J-1
0
J-1
1
J-1
2
J-1
3
J-1
4
J-1
5
J-1
6
J-1
7
J-1
8
# o
f co
ntr
acts
K.C. WHT: Large Spec Fund Length
(250)
(200)
(150)
(100)
(50)
0
50
100
J-0
6
J-0
7
J-0
8
J-0
9
J-1
0
J-1
1
J-1
2
J-1
3
J-1
4
J-1
5
J-1
6
J-1
7
J-1
8
# o
f co
ntr
acts
All WHEAT: Large Spec Fund Length
2121 |
World Wheat production and ending stocks to decline- Production at a 4 year low
- Ending stocks draw down after 5 years of build
728736
752758
733
550
575
600
625
650
675
700
725
750
775
04/05 06/07 08/09 10/11 12/13 14/15 16/17 18/19 F
M
M
T
World Wheat Production
156
195
219
244
257
274
261
0%
5%
10%
15%
20%
25%
30%
35%
40%
120
140
160
180
200
220
240
260
280
04/05 06/07 08/09 10/11 12/13 14/15 16/17 18/19 F
MM
T
World Wheat Ending Stocks
Stocks Stocks to use ratio
2222 |
China and India combined hold more wheat stocks than the rest of the world
20
40
60
80
100
120
140
160
04/05 06/07 08/09 10/11 12/13 14/15 16/17 18/19 F
MM
T
Wheat ending stocks
Rest of the world
China + India
2323 |
Russia has surpassed U.S. as the #1 exporter of Wheat
0
5
10
15
20
25
30
35
40
45
91/92 93/94 95/96 97/98 99/00 01/02 03/04 05/06 07/08 09/10 11/12 13/14 15/16 17/18 E
MM
T
Wheat Exports
Russia United States EU-28
2424 |
Week 15: U.S. Wheat export commitments are LOWEST since 2009/10 led primarily by HRW
- USDA forecast for all Wheat at 1025 mbu (900 mbu YA)Implied increase of 231 mbu in balance of year
436
339
766
592
358
570
482454
627
457
394
474 481
375
483
300
350
400
450
500
550
600
650
700
750
800
05/0
6
06/0
7
07/0
8
08/0
9
09/1
0
10/1
1
11/1
2
12/1
3
13/1
4
14/1
5
15/1
6
16/1
7
17/1
8
18/1
9 F
5 yr
avg
mbu Wheat export commitments: Week 15
2525 |
World Wheat trade expected to be DOWN 1 MMT led by North Africa, Turkey and India, not offset by higher numbers in China and Brazil
- Trade will be curbed further led by lower Wheat feeding prospects
172
182 183 182
100
110
120
130
140
150
160
170
180
190
04/05 06/07 08/09 10/11 12/13 14/15 16/17 18/19 F
MM
T
World Wheat Trade
2626 |
Decline in FSU-12 wheat exports to be filled by all to include North America- Most “other” big exporters to stay FLAT YoY or decline
- EU-28 exports at 23 MMT seems high and Russian pace needs to be monitored
Country ‘17/18 ‘18/19 F YoY
U.S 23 29 6
FSU-12 69 61 (8)
EU 23 23 -
Canada 22 24 2
Aus 16 14 (1)
Arg 14 14 -
TOTAL 167 166 (1)
28 27 25 34 27 2436 28 28 32 23 22 29 23 29
16 21 2322 38 37 14 39
2637
40 5154 69 61
1516 14
12
2522
23
1723
32 3535
2723 23
1516 19
17
1919
1718
19
22 2522 20
22 24
1615 11 7
1314
18
2321
18 1716 22 16 14
14 8 12 10
95
8
127
2 49
12 14 14
0
20
40
60
80
100
120
140
160
180
04
/05
05
/06
06
/07
07
/08
08
/09
09
/10
10
/11
11
/12
12
/13
13
/14
14
/15
15
/16
16
/17
17
/18
E
18
/19
F
MM
T
Wheat Exports
US FSU 12 EU Canada Aus Arg
Major Exporters = US, Canada, Australia, Argentina and EU 28
2727 |
Wheat feeding for 2018/19 is expected to be DOWN led by EU and FSU-12
60 52 59 63 60 5261 58 53 58 51 49 55 59 56 58 53
24
18
2123
2224
25 2724
28
22 2325
27 2832
29
9
7
65
59
9 1316
28
2919
1813 20
1619
0
20
40
60
80
100
120
02/
03
03/
04
04/
05
05/
06
06/
07
07/
08
08/
09
09/
10
10/
11
11/
12
12/
13
13/
14
14/
15
15/
16
16/
17
17/
18
18/
19
MM
T
Wheat feeding by region (Major)
EU - 28 FSU -12 E. Asia (China, S Korea, Japan & Taiwan)
7 9 9 8 83
107 6
1015
117 7
116 8
22 1 1 1
1
1
23
4
3
3
58
10
995
4 5 5 5
5
5
5 5
7
5
65
6
6
76
0
5
10
15
20
25
30
02/
03
03/
04
04/
05
05/
06
06/
07
07/
08
08/
09
09/
10
10/
11
11/
12
12/
13
13/
14
14/
15
15/
16
16/
17
17/
18
18/
19
MM
T
Wheat feeding by region (Minor)
N. America S.E Asia (VIMPT) Middle East
2828 |
Ending stocks to be drawn DOWN by 18 MMT to meet exports- This will continue to pose competition for the U.S. in the short term
40
59 59
3932
4858 55
4740 43
50 52 56 57
45
15
18 18
13
15
22
2623
27
1516
21 1721 20
14
20
30
40
50
60
70
80
90
03
/04
04
/05
05
/06
06
/07
07
/08
08
/09
09
/10
10
/11
11
/12
12
/13
13
/14
14
/15
15
/16
16
/17
17
/18
18
/19
MM
T
Wheat Ending Stocks
Major FSU 12
Major Exporters = US, Canada, Australia, Argentina and EU 28
2929 |
Tax structure change on exports (23% to 0%)- The return of acres post the Macri regime in Dec 2015
-It has become an export powerhouse as Food use has stagnated along with capped Brazil market
Argentina Wheat Annual 13/14 14/15 15/16 16/17 17/18 E YOY chg 18/19 F YOY chg
Wheat (DEC - NOV) MMT Sep est Sep fcst
Harv Acres (M HA.) 3.50 4.96 3.95 5.56 5.60 0.04 6.00 0.4
Yield (MT/HA) 3.00 2.81 2.86 3.31 3.21 (0.10) 3.25 0.0
Production 10.5 13.9 11.3 18.4 18.0 (0.4) 19.5 1.5
Beg. Stocks 0.3 2.5 4.8 0.8 0.2 (0.6) 0.7 0.5
Imports 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
TOTAL SUPPLY 10.8 16.5 16.1 19.2 18.3 -1.0 20.2 2.0
Food use 6.0 6.1 5.5 5.1 5.5 0.4 5.6 0.1
Feed & Residual 0.1 0.3 0.2 0.1 0.1 0.0 0.1 0.1
Exports 2.3 5.3 9.6 13.8 12.0 (1.8) 14.2 2.2
TOTAL USE 8.3 11.7 15.3 19.0 17.6 (1.4) 19.9 2.4
Domestic Use 6.1 6.4 5.7 5.2 5.6 0.4 5.7 0.1
Ending Stocks 2.5 4.8 0.8 0.2 0.7 0.5 0.3 (0.4)
% of Use 30.0% 41.2% 5.3% 1.3% 4.0% 2.7% 1.6% (2.4%)
Argentina Wheat Supply and Demand
3030 |
Smaller supplies will ask for record imports- But most of it will stem from Argentina
Brazil Wheat Annual 13/14 14/15 15/16 16/17 17/18 E YOY chg 18/19 F YOY chg
Wheat (OCT - SEP) MMT Sep est Sep fcst
Harv Acres (M HA.) 2.20 2.73 2.45 2.1 1.9 (0.2) 2.0 0.1
Yield (MT/HA) 2.41 2.20 2.26 3.18 2.23 -0.95 2.35 0.1
Production 5.3 6.0 5.5 6.7 4.3 (2.5) 4.7 0.4
Beg. Stocks 1.0 1.9 0.9 1.0 2.3 1.3 1.3 (1.0)
Imports 7.1 5.4 6.7 7.3 7.0 (0.3) 7.5 0.5
TOTAL SUPPLY 13.4 13.3 13.2 15.1 13.5 (1.6) 13.5 (0.0)
Food use 10.8 10.4 10.6 11.4 11.5 0.1 11.6 0.1
Feed & Residual 0.6 0.3 0.5 0.8 0.5 (0.3) 0.5 0.0
Exports 0.1 1.7 1.1 0.6 0.3 (0.4) 0.3 0.1
TOTAL USE 11.5 12.4 12.2 12.8 12.3 (0.6) 12.4 0.2
Domestic Use 11.4 10.7 11.1 12.2 12.0 (0.2) 12.1 0.1
Ending Stocks 1.9 0.9 1.0 2.3 1.3 (1.0) 1.1 (0.2)
% of Use 16.4% 7.0% 8.2% 17.6% 10.4% (0.1) 8.6%
Brazil Wheat Supply and Demand
3131 |
HRW Insurance for 2019/20 was set at 18% higher than YA- Current prices point towards the highest price since 2015
- Will acres rise above 25.0 m. acres?
30.1
32.6
30.8
30.0
29.3
33.0
31.331.7
28.6 28.5
29.6 29.7
30.5
29.2
26.6
23.4 23.2
22
24
26
28
30
32
34
2002 2004 2006 2008 2010 2012 2014 2016 2018
m. a
cre
s
U.S. HRW acres
334
373
340 356 352
452
588
872
541
716
862 878
702
628
520
459 487
574
300
400
500
600
700
800
900
2002 2004 2006 2008 2010 2012 2014 2016 2018
cen
ts/b
ush
el
Insurance Rate for KW Wheat (Aug 15 to Sep 15 average)
3232 |
TAKEAWAYs- World wheat situation in transition
• There will be short fall in World production in 2018/19 led mainly by FSU-12
• This will however not translate into a 1 for 1 export shortfall due to big carry in stocks availability
• World Wheat trade forecast seems high as feeding could be further curbed
– Russia and Ukraine could face wheat export controls led by the government
• US anxiously awaits export business which is likely to come to fruition in Q1 2019
• Major exporter wheat ending stocks are being drawn down to very tight levels
– This will provide for less of cushion in 2019/20
• US Producers are forecast to increase winter wheat acreage by 10%
3333 |
Takeaways• World Wheat acreage has STAGNATED while yields have IMPROVED
– U.S. acreage though has fallen to historic lows
– Policy and profitability has been a big driver of supply
• DEMAND for corn and soy continue to outpace wheat
– Global wheat stocks increasing led primarily by China
• DECLINE in the value of US Dollar will likely help exports
• U.S. remains a RESIDUAL wheat supplier to the world
3434 |
Takeaways• World Wheat acreage has STAGNATED while yields have IMPROVED
– U.S. acreage though has fallen to historic lows
– Policy has been a big driver of supply
• DEMAND for corn and soy continue to outpace wheat
– Global wheat stocks increasing led primarily by China
• DECLINE in the value of US Dollar will likely help exports
• U.S. remains a RESIDUAL wheat supplier to the world
• Large speculator carrying BIG short positions
• Wheat prices remains at the LOW-END of the range
• Returns in equities are OUTPACING that of commodities (Agriculture)
– Carry structure is shaping market composition of various players
3535 |
• Carries: I need July Dec for KW and W
• KC VSR: Read and 2 different rates
• Option volatility
• KC Protein
• KW vs. WZ
• WL and Informa
• In depth CFTC report
• O.I.
• Acres and yields
• World Per capita consumption and U.S.
• YTD Price change as % or flat price
• Prices in lower quartile
• Insurance Prices for Wheat
3636 |
• Value of equities
• Value of Ag commodities
3737 |
Food for thought
• What will happen to the price discounts against the U.S. offers?
• How about MENA countries “BUDGET CONSTRAINTS” under stable to
higher Crude oil prices affect either consumption or stocks levels??
• What is World Wheat (Russian) trend yield? Will we break the streak?
• We are 3 months from Winter Wheat harvest for new crop, how will the
market react to quantity and quality??
• What is U.S. Winter Wheat acreage going to do this FALL?
• Does World wheat trade FALL led by fewer feed wheat imports?
3838 |
China and India combined hold 40 MMT more wheat stocks than the rest of the world
20
40
60
80
100
120
140
160
04/05 06/07 08/09 10/11 12/13 14/15 16/17 18/19 F
MM
T
Wheat ending stocks
Rest of the world
China + India
3939 |
Takeaway
• EU-28 wheat production is currently forecast at 149.5 MMT (151.6 MMT YA), however recent heat
in France, Germany, Scandinavia and Latvia has the potential to reduce the crop by 5 to 7 MMT
from YA levels
• Tight ending stocks and already reduced wheat feeding will be unable to fall much further than
current estimates, so declines in production will have the biggest effect on “net exports”
– Key countries that take EU wheat include:
• Middle East: Saudi Arabia, Iran, Jordan, Yemen, Kenya
• North Africa: Algeria, Morocco, Tunisia, Libya, and Egypt
• Sub-Saharan Africa
• Factors to watch in this situation include:
– A YoY increase in Black sea corn supplies will allow corn imports to remain at elevated levels
– Russia whose exports to MENA countries & Sub-Saharan Africa increased to record levels will
now be curbed due not only to a drop in YoY production, but also lower carryin stocks
4040 |
2018/19 WORLD
• PRODUCTION: All Wheat production to be down 3.0%+ from record level of YA to 732
MMT
– There is still some downside in production led by EU-28 and Russia
– Planting progress in Southern hemisphere (Argentina and Australia) is done
• Argentine area to increase whilst Australia yields to be below trend
– The major areas of YoY declines are in EU-28, Russia, Ukraine and South Asia which will not be offset by
increases in North America
– U.S. production to be UP 8% in spite of lower HRW stocks
• BEGINNING STOCKS: Beginning Stocks are UP 17 MMT which provides cushion to
YoY production decline with Supplies (Prod + Beg Stock) will be DOWN 6+ MMT
– Most of these stock increases are in Big 5 (Ex. US)
– Big 5 exporter + FSU-12 stocks still decline from YA
Big 5 = Canada, EU-28, United States, Argentina and Australia
4141 |
• TRADE: World Wheat trade to increase by 3 MMT to a RECORD level
– There is plenty of Wheat (at least in quantity) to help with a BIG world wheat trade which will
have to come on the heels of strong Wheat Feeding
– MENA imports are DOWN YoY due to a bigger crop
– Declines by other competitors combined with higher world trade will help U.S. increase
volumes and market share
• FEEDING: World Wheat feeding is forecast to decline by 3 to 5 MMT
– We envision this decline in Wheat feeding in EU-28 and FSU-12 will aid in their wheat exports,
but will come at the expense of lower stocks along with increased CORN IMPORTS
– Likewise, a decline is also anticipated in VIMPT and So. Korea which will increase their rates
on corn imports
– Will China feeding be curbed as they clear corn stocks????
4242 |
TAKEAWAYs
• There will be short fall in World production in 2018/19 led mainly by FSU-12
• This will however not translate into a one for one export shortfall due to the big carry in stocks
availability
• U.S. wheat crop (Winter) which seems to be below TREND is uncertain and nervous about the
damage from recent dryness (90+days). The Spring wheat plantings to include HRS should gain by
at least 1.0 m. acres combined with return to trend and will help raise the ALL WHEAT CROP from
YA levels by 3 to 4 MMT
– U.S. Wheat exports (HRW) will struggle to find additional demand compared to YA due to improvement in
North Africa production prospects along with bigger EU-28 and FSU-12 supplies
– Competition should remain fierce for SRW wheat led by EU-28
– HRS exports needs to monitored with Phil, China and Mexico importers in focus along with Canadian
prospects
• US ending stocks for 2018/19 to be decline further as over supply is not being offset by lower
demand (Exports and Feed)
4343 |
Food for thought
• What will happen to the price discounts against the U.S. offers?
• How about MENA countries “BUDGET CONSTRAINTS” under stable to
higher Crude oil prices affect either consumption or stocks levels??
• What is World Wheat (Russian) trend yield? Will we break the streak?
• We are 3 months from Winter Wheat harvest for new crop, how will the
market react to quantity and quality??
• What is U.S. Winter Wheat acreage going to do this FALL?
• Does World wheat trade FALL led by fewer feed wheat imports?
4444 |
Wheat price is currently trading below the average, but the forward curve is above the average
$2.0
$4.0
$6.0
$8.0
$10.0
$12.0
$14.0
Jan
-00
Jan
-01
Jan
-02
Jan
-03
Jan
-04
Jan
-05
Jan
-06
Jan
-07
Jan
-08
Jan
-09
Jan
-10
Jan
-11
Jan
-12
Jan
-13
Jan
-14
Jan
-15
Jan
-16
Jan
-17
Jan
-18
Jan
-19
Jan
-20
per
bu
shel
Wheat (Chicago futures) historical price and forward curve
Wheat historical price Forward curve Avg (2000 thru current)
4545 |
15
20
25
30
35
40
Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun
% Chicago Wheat Volatility - July Contract
5 Year Range 2016-2017 2017-2018 5 Year Average
4646 |
(8%) (6%) (4%) (2%) - 2% 4% 6%
Livestock
Industrial Metals
Grains
Agriculture
Precious Metals
Softs
Petroleum
Energy
BCOM Sub-Sector Nov. 2017 MTD Change
4747 |
4848 |
Big carries in the futures market
(60)(40)(20)
020406080
100120
1-A
ug
8-A
ug
15-A
ug
22
-Au
g
29-A
ug
5-S
ep
12
-Se
p
19
-Se
p
26
-Se
p
3-O
ct
10
-Oct
17
-Oct
24
-Oct
31
-Oct
7-N
ov
14-N
ov
21-N
ov
28-N
ov
¢ Dec. - Jul. KC Wheat Spread
5 Year Range 2016 2017 5 Year Average
(100)
(50)
0
50
100
150
1-A
ug
8-A
ug
15-A
ug
22-A
ug
29
-Au
g
5-S
ep
12
-Se
p
19
-Se
p
26
-Se
p
3-O
ct
10
-Oct
17
-Oct
24
-Oct
31
-Oct
7-N
ov
14-N
ov
21-N
ov
28-N
ov
¢ Dec. - Jul. Chicago Wheat Spread
5 Year Range 2016 2017 5 Year Average
4949 |
Wheat area has been flat while yield has increased 20%
95
100
105
110
115
120
125
07/08 09/10 11/12 13/14 15/16 17/18 F
IND
EX (
'07
/08
=1
00
)
Index of World wheat
Yield
Area
5050 |
20/20: Wheat market in Perspective
• U.S. Wheat acreage continues to DECLINE
• U.S. wheat ending stocks FELL by 15% from record levels
• World crops were once again “ABOVE trend”
• SUPPLY > Demand → For the 5th consecutive year
• Increased carries are the LURE for large speculator
• Low protein for a 2nd in a row particularly in the U.S.
5151 |
TODAY
• HRW acreage was FLAT from YA, but led to a smaller crop
• HRW protein was marginally above average
• Funds are long HRW
• HRS: Increased area and above trend yields lead to BIG crop
– Canada forecast to have a bigger crop YoY
• Big exporters EU-28 and FSU-12 production prospects declining
• US export commitments are the lowest since 2009/10
• Record large area in Argentina
• World trade growth being led by Ex. MENA
5252 |
Agenda
• World and U.S. Acreage
• Demand growth
– Ethanol, China and meat
– Wheat flour consumption
• Other “G2” (India and China)
– Minimum support price and Supply & Demand trends
• YTD returns of various asset classes
• Market composition
– Open Interest
– Large speculator and Index funds
• Trade Policy