Unigrain (Pty) Ltd

WEEKLY WHEAT REPORT

Tel. No. : +27 11 692 4400 Fax. No. : +27 11 412 1183

18 JANUARY 2017

INTERNATIONAL MARKET Table 1: CME and KCBT wheat prices and weekly change (cents/bushel) Weekly change Currently 11/01/2017 (c/bu) CME Mar-17 433 ¾ 418 ¾ 15 KCBT Mar-17 452 ¼ 431 ¾ 20 ½



Monthly change (c/bu) 28 ¾ 38 ¼

From the table above we see that US wheat prices posted some good gains in the past week with KCBT wheat prices leading the way higher. On a monthly basis US wheat prices are also trading higher with March CME and KCBT wheat prices gaining 7.1% and 9.2% in the past month respectively. On the technical chart for March KCBT wheat we see that the market posted some good gains in the past few sessions with some short covering that was seen especially after the market broke above the key averages including the 100-day average. March KCBT wheat prices traded as high as $4.57/bushel in the session yesterday which is a level last seen in August 2016. The shorter moving averages and indicators are pulling higher which could continue to provide some support but the market is overbought. US wheat prices were supported by some short covering that was seen especially by investment funds while the weaker dollar seen in the past few sessions also added some support. Late last week the USDA in their report pegged the winter wheat area estimate lower than the market expectation which supported KCBT wheat futures.

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Figure 1 below presents the March KCBT wheat prices and the dollar/euro in the past few months. From the graph below we see that the dollar has been under some pressure in the past 2-weeks which has provided some support to US wheat prices. The weaker dollar is making US CME and KCBT wheat more competitive in the global wheat export market.

Figure 1: KCBT March wheat and dollar/euro

KCBT wheat

17/01/09

16/12/26

16/12/12

16/11/28

16/11/14

16/10/31

16/10/17

16/10/03

16/09/19

16/09/05

16/08/22

16/08/08

16/07/25

16/07/11

16/06/27

16/06/13

16/05/30

16/05/16

1.18 1.16 1.14 1.12 1.1 1.08 1.06 1.04 1.02 1 0.98 16/05/02

560 540 520 500 480 460 440 420 400 380

Dollar/euro

The USDA released their quarterly acreage and stocks report and the monthly supply and demand estimates in their report last week. From the USDA report we did see that: 

st

The US December 1 quarterly wheat stocks were reported at 2.073 billion bushels which was slightly higher than the market expectation seen at 2.056 billion bushels. The 16/17 US wheat ending stocks was estimated at 1.186 billion bushels which was also slightly higher than the market expectation seen at 1.148 billion bushels. Changes to the US wheat balance sheet included a 35 million bushel reduction in the US feed usage estimate. Figure 2 below presents the US wheat ending stocks and stock to usage ratio seen in the past few seasons. From the graph below we see that the 2016/17 US all wheat ending stocks is seen at new highs and the 2016/17 wheat stock to usage ratio of 53% is also the highest on record.

Although everything has been done to ensure the accuracy of the report Unigrain (Pty) Ltd cannot be held responsible for any losses incurred as a result of the use of the information contained in the report

“Together we make a difference”

Figure 2: US wheat ending stocks and stocks to usage ratio 1400

65

1200

55

1000

45

800 35 600 25

400

15

200

Wheat ending stocks (mil bushels)

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16/17

15/16

14/15

13/14

12/13

11/12

10/11

09/10

08/09

07/08

06/07

05/06

04/05

03/04

02/03

01/02

5

00/01

0

Stock to usage ratio (RHS)

From the USDA report we also see that the new crop 2017 US winter wheat area planted was estimated at 32.383 million acres which was well below the market expectation seen at 34.139 million acres and 10% lower than the 36.137 million acres planted in the previous season. Figure 3 below presents the US winter wheat area planted in the past few seasons. From the graph below we see that the 2017 winter wheat area estimate is seen at new lows which could help to counter the oversupplied wheat market going forward.

Figure 3: US winter wheat area planted (mil acres) 50

45 40 35 30 25 20 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

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In terms of the rest of the world the USDA estimated the 2016/17 world wheat crop at 752.69 million tons which was slightly higher than the previous estimate seen at 751.26 million tons. Changes to the supply side of the world wheat market included larger crop estimates for Argentina (+600 000 tons) and Russia (+500 000 tons). The 2016/17 world wheat ending stocks was reported at 253.29 million tons compared to the 252.14 million tons seen in the report last month. Figure 4 below presents the world wheat production and ending stocks estimates seen in the past few seasons. From the graph below we see that world wheat production and ending stocks are also seen at new record highs in the 2016/17 season.

Although everything has been done to ensure the accuracy of the report Unigrain (Pty) Ltd cannot be held responsible for any losses incurred as a result of the use of the information contained in the report

“Together we make a difference” 2

Figure 4: World wheat production and ending stocks (mil tons) 800

280.0 260.0 240.0 220.0 200.0 180.0 160.0 140.0 120.0 100.0

750 700 650 600 550

500 90/91 91/92 92/93 93/94 94/95 95/96 96/97 97/98 98/99 99/00 00/01 01/02 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

450

World wheat production

Ending stocks (RHS)

Looking at the weather forecast for the key winter wheat areas of the US in the week ahead we see that very little moisture is expects in the key winter wheat areas except the far southern winter wheat areas of the US. In the key States of Kansas and Oklahoma the rainfall that is expected should be less than 0.5 inches. It must be said that some rainfall was seen in the US winter wheat areas the past weekend. Figure 5 below presents the cumulative rainfall forecast for the US in the week ahead. Figure 5: Cumulative rainfall forecast week ahead

LOCAL WHEAT MARKET Figure 6 presents the weekly % change in our local wheat market as well as the weekly change in CME and KCBT wheat prices and the rand. From the graph below we see that US wheat prices posted some strong gains in the past week with March CME and KCBT wheat prices gaining 3.58% and 4.75% in the past week. South African wheat prices performed rather poorly with Safex March and July wheat ending 0.37%$ and 0.12% lower. South African wheat prices were pressured by the stronger rand with the rand currently quoted R13.47/$ compared to the R13.72/$ seen a week ago.

Although everything has been done to ensure the accuracy of the report Unigrain (Pty) Ltd cannot be held responsible for any losses incurred as a result of the use of the information contained in the report

“Together we make a difference” 3

Figure 6: Safex wheat, rand and US wheat prices 6.00 4.75

5.00 3.58

4.00 3.00 2.00 1.00 0.00

CME Mar

-1.00

KCBT Mar

Rand/$

Safex Mar

Safex Jul -0.12

-0.37

-2.00

-1.82

-3.00

In the past week we did see that: 

The rand has been grinding stronger from the higher seen in mid-November and the rand is once again trading around the R13.50/$ support area. The stronger rand seen the past few sessions has put some pressure on local wheat contracts with March wheat trading around R4000-R4040 for some time. Figure 7 below presents the Safex March wheat and dollar/euro in the past few months.

Figure 7: Safex March wheat and rand/dollar 5000

16.5 16 15.5 15 14.5 14 13.5 13 12.5 12

4800 4600

4400 4200 4000

Safex March wheat

17/01/10

16/12/27

16/12/13

16/11/29

16/11/15

16/11/01

16/10/18

16/10/04

16/09/20

16/09/06

16/08/23

16/08/09

16/07/26

16/07/12

16/06/28

16/06/14

16/05/31

16/05/17

16/05/03

3800

Dollar/euro

In the section below we take a look at the supply and demand estimates of wheat in South Africa. From the table below we see that:  



In the 2016/17 season on the supply side of our market we started with opening stocks of 728 000 tons and we based our estimate on the CEC crop estimate seen at 1.876 million tons. On the demand side of our market we estimate the human consumption of wheat at st 3.165 million tons which is slightly higher year/year but in the 1 2-months of the marketing year we did see higher demand year/year. Still on the demand side we estimate the total exports at 165 000 tons (whole wheat and wheat products) which is higher than the total exports seen at 69 000 tons in the previous season. In order to ensure enough supplies for 8-weeks of local consumption we need pipeline requirements of 487 000 tons. Based on this we estimate the total wheat import requirement for the 2016/17 season at 1.300 million tons which is well below the 2.063 st million tons imported in the previous season. After the 1 3-months of the marketing season the total wheat imports is seen at only 81 376 tons.

Although everything has been done to ensure the accuracy of the report Unigrain (Pty) Ltd cannot be held responsible for any losses incurred as a result of the use of the information contained in the report

“Together we make a difference” 4

Table 2: Supply and demand estimates of wheat in 2013/14 CEC Final 491 3 485 1 817 1 806 11 1 668 3 218 3 123 54 42 270 15 255 488 -480 7 506 3.70

Opening stocks (1 Oct.) Total Acquisition Producer deliveries Human wheat Feed wheat Imports destined RSA Total Consumption Human consumption Animal feed Other* Total Exports to Africa Products Whole wheat Ending stocks (30 Sept.) 8 weeks com. demand Surplus / (shortage) Hectares Yield

2014/15 CEC Final 488 3 533 1 701 1 691 10 1 832 3 132 3 109 4 19 292 17 275 597 -478 118 477 3.57

2015/16 CEC Final 597 3 470 1 407 1 399 8 2 063 3 170 3 142 2 26 69 15 54 827 -483 344 482 2.92

2016/17 CEC 827 3 176 1 876 1 865 11 1 300 3 200 3165 5 30 165 15 150 638 -487 151 508 3.69

* Seed, gristing, w ithdraw n,released end consumers & miscl. CEC and Sagis final estimate Sources: Sagis, CEC, and ow n calculations th

The next data release for the South African wheat market will be the 6 wheat production estimate due to be released this time next week. In the report last month we did see a 6.2% upward revision in the South African wheat crop to the current estimate of 1.876 million tons.

FOCUS FOR THE WEEK   

  

US wheat prices posted some good gains in the past week with some short covering that was seen while the weaker dollar seen in the past week also added some support making US wheat more competitive in the global market. On the technical chart we see that March KCBT wheat prices broke above the key averages including the 100-day average and the market is trading at a 5-month high. The market is however rather overbought. US winter wheat prices is also finding some support from the US winter wheat area estimate which came under well below expectations. Weather conditions in the US winter wheat areas will be important going forward. South African wheat prices failed to follow the US markets higher in the past week with local wheat contracts coming under some pressure. The stronger rand is putting some pressure on local wheat prices. The market still awaits a decision on the South African wheat import tariffs and imports have dried up in the past few weeks. On the technical chart for March Safex wheat we see that key support is seen at R4000/ton while resistance is seen at the 40-day average seen just below R4040/ton.

See the technical graphs below: 

Safex March wheat prices

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KCBT March wheat prices

Although everything has been done to ensure the accuracy of the report Unigrain (Pty) Ltd cannot be held responsible for any losses incurred as a result of the use of the information contained in the report

“Together we make a difference” 5

Daily WEAH7

2016/06/02 - 2017/01/27 (JHB)

Cndl, WEAH7, Trade Price 2017/01/17, 4 019.00, 4 030.00, 4 007.00, 4 010.00N/A, N/A SMA, WEAH7, Trade Price(Last), 100 2017/01/17, 4 109.00 SMA, WEAH7, Trade Price(Last), 40 2017/01/17, 4 037.38 SMA, WEAH7, Trade Price(Last), 9 2017/01/17, 4 026.44

Price ZAR T 4 750 4 700 4 650 4 600 4 550 4 500 4 450 4 400 4 350 4 300 4 250 4 200 4 150 4 100 4 050 4 000 3 950 Auto

RSI, WEAH7, Trade Price(Last), 14, Wilder Smoothing 2017/01/17, 44.181

Value ZAR T Auto

MACD, WEAH7, Trade Price(Last), 12, 26, 9, Exponential 2017/01/17, -7.38, -6.91

Value ZAR T Auto

06

13 20 June 2016

27

04

11

18 July 2016

25

01

08

15 22 August 2016

29

05

12 19 26 September 2016

03

10

17 24 October 2016

31

07

14 21 November 2016

28

05

12 19 28 December 2016

03

09

16 23 January 2017

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Daily KWH7

2016/05/04 - 2017/01/31 (CHG)

Cndl, KWH7, Trade Price, 2017/01/18, 451.50, 452.25, 451.25, 452.25, +0.25, (+0.06%), SMA, KWH7, Trade Price(Last), 9, 2017/01/18, 441.61, SMA, KWH7, Trade Price(Last), 40, 2017/01/18, 421.69, SMA, KWH7, Trade Price(Last), 100, 2017/01/18, 426.92 Price USc Bsh 530 520 510 500 490 480 470 460 452.25 450 441.61 440 430 426.92 421.69 420 410 400 Auto MACD, KWH7, Trade Price(Last), 12, 26, 9, Exponential, 2017/01/18, 8.57, 5.06

8.57 Value 5.06 USc Bsh Auto

RSI, KWH7, Trade Price(Last), 14, Exponential, 2017/01/18, 76.325 Value 76.325 USc Bsh Auto 09

16 23 May 2016

31

06

13 20 June 2016

27

05

11

18 25 July 2016

01

08

15 22 August 2016

29

06

12 19 26 September 2016

03

10 17 24 October 2016

31

07 14 21 28 November 2016

05

12 19 27 December 2016

03

09 17 23 January 2017

30

“Together we make a difference” 7