World Grain - March 2016 - 14

NEWSREVIEW

Changing government policies creates wheat market volatility
ARLINGTON, VIRGINIA, U.S. - With
fundamental factors well established, wheat
futures markets thus far in 2016 are reacting
mainly to changing government policies, notably those of Argentina, Egypt and Russia,
the U.S. Wheat Associates (USW) reported
on Feb. 11. Markets dipped when Argentina's government removed export barriers.
Prices rose and fell with each new rumor
about the Russian export tariff, and fell again
when Egypt's muddled import requirements
led to two canceled General Authority for
Supply of Commodities (GASC) tenders,
slowing the pace of wheat imports by the
world's largest buyer.
In December, Argentina removed its 23%
export tax on wheat, eliminated its wheat export quota and devalued its currency, all of
which pushed Argentine wheat to the global
market in a big way. According to Reuters,
Argentine ports loaded 1.77 million tonnes
of wheat between Dec. 14, 2015 and Feb. 5,
2016. The U.S. Department of Agriculture
(USDA) pegs total Argentine wheat supply
at 14.2 million tonnes and expects exports to
reach 6.5 million tonnes in 2015-16.
Removal of the restrictive export policies
helped Argentine farmers by giving them
more market access. From 2012-13 to 201415, USDA estimated that ending stocks there
climbed from 288,000 tonnes to 3.17 million
tonnes due to increased usage of on-farm silo
bag storage. This has given farmers a unique
hedge this year because higher protein wheat
supplies in Argentina are short and holding
better quality wheat will likely mean more
revenue. In marketing year 2015-16, USDA

expects ending stocks to fall 57% to 1.36
million tonnes, USW said. Though the extent is still being determined, the recent export policy changes for wheat will also affect
WKH$UJHQWLQHÀRXULQGXVWU\7KH,QWHUQDWLRQal Grains Council (IGC) expects Argentina
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world in 2015-16; Turkey and Kazakhstan
are numbers one and two, respectively.
With the U.S. dollar strengthening to 12year highs in mid-January, and the Russian
ruble plunging to record lows, Russian wheat
gained competitive price strength. Russia produced 61 million tonnes of wheat in
2015-16, up 3% year over year. On Jan. 27,
5XVVLDQRI¿FLDOVVSDUNHGVSHFXODWLRQE\DQnouncing it was examining its current wheat
export tariff, but the government did not say
if it would raise or lower the rate, USW said.
While Russia has since announced that it
will leave the export tax unchanged, further
depreciation of the ruble will increase the tax
due to the way it is calculated. On Jan. 21,
Russian wheat prices offered for an Egyptian
tender averaged $187 per tonne ($5.09 per
bushel) free-on-board (FOB). The Russian
export tax of 50% of the customs price minus 6,500 rubles ($83) per tonne but not less
than 10 rubles per tonne on $187 per tonnes
of wheat adds roughly $10 per tonne.
Since 2008, Russia has restricted wheat
exports three times, including the 2015 export tax increase, in order to control domesWLFIRRGSULFHVDQGLQÀDWLRQ7KHXQFHUWDLQW\
about export policies and limited on-farm
storage capacity in Russia create an incentive for Russian exporters to front-load their

sales each marketing year to ensure they
sell as much wheat as possible, regardless
RISULFH,QWKH¿UVWKDOIRI5XVVLD
exported 17.2 million tonnes according to
SovEcon, a Russian consultancy. USDA predicts total Russian exports in 2015-16 will
reach 23.5 million tonnes.
After four weeks of debate, Egypt's Agriculture Quarantine Authority announced that
it would accept the GASC 0.05% ergot funJXVVSHFL¿FDWLRQIRULPSRUWHGZKHDW+RZever, GASC cancelled its most recent tenders
after continued uncertainty forced traders to
reevaluate the risk involved. All traders boyFRWWHG*$6&¶V¿UVWWHQGHUWKHQRQO\DIHZ
bids came in on the second tender, each with
a $10 to $20 per tonne risk premium.
USDA expects 2015-16 Egypt domestic consumption to increase to 19.6 million
tonnes, a 3% increase year over year. To
meet the growing demand, Egypt is expected to import 11.5 million tonnes of wheat in
2015-16, a 4% increase from the prior year.
About half of Egypt's wheat imports go diUHFWO\WRSURGXFWLRQRIVXEVLGL]HGÀDWEUHDG
(Baladi bread) to maintain the food security
of its 92 million citizens. Reuters reported
Egypt's strategic wheat reserves would last
until May 11, time Egypt's government buyers can use to work on regaining trader con¿GHQFH
Markets will continue to adjust as the
long-term implications of these policy
changes become clear, but in the shortterm, buyers and sellers need to weather the
inevitable price volatility that always result,
USW said.

progress on our strategic blueprint. Overall volumes grew seven percent and sales
of our higher-value specialty portfolio
grew to 25 percent of sales," said Ilene
Gordon, chairman, president and chief exHFXWLYH RI¿FHU ³2XU DFTXLVLWLRQV RI 3HQford Corporation and Kerr Concentrates
met our earnings and synergy expectations
and propelled us further into the specialty
ingredients. We also announced changes to
optimize our global network by reducing
costs and maximizing productivity. North
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operating income for the year while South
America and EMEA operating income was
lower than the prior year as they faced
slowing economies and foreign-exchange
headwinds."
Full-year net sales were down 1% to

$5.621 billion as a result of changes in
foreign currency exchange rates and the
pass through of lower corn costs, partially
offset by volume growth, both organic and
acquisition-related, and increased prices in
South America, which partially compensated for currency headwinds, the company said.
For 2016, the company said it anticipates adjusted EPS of $6.20 to $6.60. The
full-year guidance assumes, compared to
last year, overall improvement in North
America, modest improvement in Asia PaFL¿FDQG(0($DQG6RXWK$PHULFDLQOLQH
given the macroeconomic environment; an
effective tax rate of approximately 30%32%; and sales of higher-value specialty
ingredients are expected to continue to
contribute to margin expansion.

Ingredion net income up 13% in 2015
:(67&+(67(5 ,//,12,6 86 ² ,Qgredion Inc. reported on Jan. 28 that net
income attributable to the company for
2015 increased 13% to $402.2 million
from $354.9 million the previous year.
Full-year 2015 reported and adjusted
operating income were $660 million and
$706 million, respectively. These were
both 14% increases compared to $581 million reported operating income in 2014 and
$616 million adjusted operating income.
The company attributed the increase
to organic volume growth in core and
specialty ingredients, acquisition-related
volume growth, and margin expansion in
North America. These positives were partially offset by the negative effect of foreign exchange. "We concluded 2015 with
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14

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World Grain - March 2016

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