Page 19 - Food Outlook

USD per tonne
350 300 250 200
150 Jan
Apr Jul
2016
Oct
Jan
Apr Jul Oct
2017
BOX 1: High quality wheat commands high premium
Export prices of high quality wheat
High quality wheat, containing protein levels between 13 and 15 percent, is essential for making specialty breads and most varieties of pasta. Price volatility for this type of wheat surged this summer, as shifts in the weather outlook between dry and rainy forecasts caused wheat prices to move up and down. In particular, droughts have diminished high-quality wheat crops in key producing countries, namely the United States, Canada and Australia, sending prices to multi-year highs and bread makers scrambling for supplies.
The United States Hard Red Spring (HRS) wheat export prices jumped in July to USD 346, from USD 300 per tonne one month before and USD 241.7 per tonne in July 2016. Canada Western Red Spring (CWRS) wheat export prices followed the same trend, reaching USD 305 per tonne in July from USD 255.6 per tonne in the previous month. In July 2016, CWRS wheat prices stood at USD 208 per tonne. Australian Prime Hard (APH) wheat export prices increased from USD 282 in June to USD 319.7 in July.
Because of their lower protein content and “softer” quality, European, Argentinian and Russian wheats sell at a lower price than the US, Canadian and Australian origins.
As wheat prices gained ground over the Northern Hemisphere’s summer period, wheat futures followed the same trend. Poor crop conditions drove prices for high quality spring wheat (HRS) in July to four-year highs on the Minneapolis Grain Exchange (MGEX) market. The HRS wheat futures soared over 50 percent, from USD 182 per tonne in January 2016 to a peak of USD 280.8 per tonne in July 2017, falling back to USD 226.4 in October 2017, as weather conditions improved and the spring wheat production estimate was revised upward.
Nearby September futures traded at a rare premium
to deferred December for most of June and early July, with the nearby contract peaking on July 3 at a premium of more than USD 12 per tonne. The CWRS wheat futures on the Intercontinental Exchange (ICE) jumped from USD 177 in May 2017 to USD 231 in July 2017, then fell as the spring wheat harvest was projected larger than expected.
Unfavourable weather conditions and uncertainty about wheat yields during the summer sharply increased the spread between HRS wheat futures sold on the MGEX and the Hard Red Winter (HRW) wheat futures sold on the Kansas City Board of Trade (KCBT). In June and July 2017, the MGEX-KCBT spread was at
USD 94 per tonne, respectively USD 61 and USD 65 more than the June 2016 and July 2016 periods. The spread recently narrowed, though continued showing a higher than average HRS premium over HRW wheat, amounting to USD 72.11 per tonne in October 2017.
Contact:
Lavinia.Lucarelli@fao.org
US HRS (13.0%), Portland Canada 1 CRWS (13.5%), St Lawrence US HRW (11.5%), Gulf
Black Sea Milling EU (France) Grade 1, Rouen
Australia APH, Newcastle (NSW)
Argentina (12.0%), Up River
Source: IGC
Wheat futures
USD per tonne
300 250 200 150
100 Jan
Source: IGC
USD per tonne
100 80 60 40 20 0
Jan Apr Jul Oct
2017
US (MGE) HRS US (CME) HRW
Wheat spreads
Apr Jul Oct
2016
Canada (ICE) CWRS
US (CME) SRW
Jan Apr
2016
Jul
Oct
Jan Apr Jul Oct
2017
MGEX- KCBT Spread
Source: MGEX
FOOD OUTLOOK NOVEMBER 2017
13
Market assessments