December 05, 2023

Commodity Insight: Wheat markets stressful, frustrating

When Russia invaded Ukraine on Feb. 24, 2022, Chicago wheat prices rose from $8.85 a bushel to $14.27 by March 7 2022. The rally, however, was rather short-lived.

A few days ago, for example, wheat fell to $6.25 a bushel. Wheat prices have collapsed over the past 18 months in face of what I believe are bullish fundamentals.

Wheat prices have been in a trading range from low to high of $10.70 a bushel. In recent days, wheat prices are much closer to the bottom of that trading range than the top or the middle.

I cannot think of another ag market that holds long-term fundamentals as bullish as wheat, but at the same time so frustrating to forecast or trade.

The wheat market has become nothing more than a headline market with prices knee-jerking higher or lower based on the news.

And the news is coming from a different time zone than the United States, which means when everyone in the entire United States is sleeping, the market-moving news is announced.

I also cannot recall the number of times since Russia invaded Ukraine that the wheat market was here when I went to bed, but over there when I woke up.

I have seen wheat down 10 cents a bushel when I stopped looking at the market late in the evening only to find prices sharply higher when I woke up. Trying to forecast the wheat prices or to trade the market has become beyond stressful and frustrating.

On my Twitter account — @commodityinsite — I recently posted: “In the past two months, September Chicago wheat rallied, fell, rallied and fell in four major price moves that amounted to $5.65 a bushel. The ‘intense volatility’ I have been warning about is firmly entrenched in all futures markets, especially wheat.”

First, understand that during the two-month time frame mentioned above the movement in wheat prices was almost as much as the value of the wheat. Also understand that corn and wheat prices tend to move in the same general direction.

As recently as June 21, front-month corn futures traded as high as $6.23, but a day ago kissed $4.75 a bushel. It was the utter collapse with wheat prices in recent days that pounded corn prices so badly.

Of course, an argument can be made that corn prices fell on their own and not simply because the wheat market has been so fickle, unpredictable and bearish.

The corn market is suffering because the Federal Reserve hiked rates to a new 22-year high and there was 2 million more acres planted than expected.

And though it was historically dry in April, May and June, the timely rain in mid-July likely boosted production, which also weighed on prices. The corn market is tumbling — even though it is estimated that 100% of Iowa is in a drought-like state.

I believe the wheat market to be a bullish ticking time bomb ready to explode higher if the right set of fundamentals fall into place.

It goes without saying that war between Russia and Ukraine is the “in your face” fundamental that could shoot wheat prices much higher in the blink of an eye. But there are other fundamentals that are bullish, as well.

The situation unfolding in India is making the wheat market also potentially quite bullish. India recently placed a ban on rice exports due to low supplies. Plus, Indian domestic supplies of wheat fell to a 15-year low.

In past years when ending supplies of Indian wheat were historically tight, it was immediately followed by large imports to feed their population, which is now the largest in the world. Even modest wheat imports by India would be a bullish development with global stocks also tight.

When I view a market, the number I focus upon is the stocks-to-use ratio. Right now, the stocks-to-use ratio with wheat exporters is at a record low, which in theory is bug-eyed bullish.

The rub, which is also bullish, is the fact there is drought-like weather in Canada and Argentina that is so threatening due to the most intense El Niño in history.

I believe the wheat market will not only move higher, but turn out to be the strong link in the grain complex.

Certainly, the wheat market has been fickle, nearly impossible to forecast and trade. It has evolved into a news headline market to boot.

Still, my work continues to suggest wheat is a snorting bull and ready to head north on a whim. If it does it will likely do so while we are all sleeping.

As I have stated before, “sleeping is for sissies.” So, stay awake.