In the assessment of senior analyst at Consultoria Trigo & Farinhas, Luiz Carlos Pacheco, there have been significant changes in the world wheat market. The expert points out that new fundamentals have emerged for the 2016/17 season:
1. Russia and not the USA are the world's largest wheat exporters: in the 2000/01 harvest, the USA had a 32% share in the world wheat market and Russia only 4%, but it implemented a program to increase its share by 2020/ 21 which, in 2015/16, reached its objective: today Russia holds 16% of the world wheat market, compared to 13% for the USA. If the Black Sea countries (Ukraine and Romania) are added, this region holds a total of 31%, the same as the US held in the 90s, making it the most important to be considered in the world market.
2. Russia sets wheat prices in the world, not Chicago anymore: With its power of penetration in the main world markets, Russia determines the winning prices for major tenders, imposing its price (around US$ 162/t FOB this Friday) as the basis for negotiations on the world market. The first consequence of this is the increase in American wheat stocks (from 16MT to 20.5MT and then to 27MT in the last three harvests), due to lack of competitiveness and export flow and the consequent drop in prices in Chicago and Kansas City to lower levels. lower than 10 years ago.
3. The strength of the Black Sea, however, is reduced to the months between July and December, when the Sea of Azov freezes, through which its exports are transported. Between December and March and until June, when the Russian winter harvest ends, space opens up for other global exporters with equal quality and competitiveness.
4. Argentina fits into the post-Black Sea period and should find an outlet for a large part of its surplus outside Mercosur this season. This means that their prices are unlikely to fall as much as expected. The problem is that, when it “left” the international market 12 years ago, Argentina had only 3-4 competitors and now there are 18 exporting countries.
5. The main driver of prices in the 2016/17 season will be quality, as there was a deterioration in this item in the hard wheat harvests in the USA and in the soft wheat harvests in France, Germany and part of the Russian harvest. If, on the one hand, there will be more physical wheat in the world, on the other hand there will be less high-protein wheat available. As a consequence, the premium for quality increases (the difference between the premiums for hard and soft wheat in the Gulf is already 50 cents/bushel) for those who can supply it. Although it does not have the same strength as stocks, it will be a determining factor in rising prices this season.
6. Between 2013/14 and 2015/16, world production grew by 3.6% and consumption by 4.7%, that is, consumption is growing more than production for demographic reasons and also stimulated by low prices. Any announcement of a reduction in supply or planted area due to low prices could be an immediate upward factor.
7. France will stop exporting 9 million tons this season, due to the sharp drop in production and quality of its harvest, but the way in which this will be replaced in its traditional markets is not yet well defined, nor it will be peaceful and this could be a factor in rising prices in the short and medium term, because competition in 2016/17 will be fierce!
