As written for CQG.
Prior to the release of the July US Department of Agriculture’s monthly World Agricultural Supply and Demand Estimates (WASDE) report, I posted the article, Grains: A Contrarian Play? In that article, I stated that soybeans, corn, and wheat were all brutally oversold and in need of relief rallies. Well, I was wrong. After the USDA report, prices continued to swoon. All three grains are trading lower than they were prior to the release of the report.
Soybeans, corn, and wheat continue to be oversold. Today I would like to focus on the price of wheat. I believe that wheat is a different animal when it comes to grains for two important reasons:
- While the United States is the world’s largest producer and exporter of soybeans and corn, this is not true with respect to wheat.
- Ukraine is a significant producer and exporter of wheat and is currently at war.
Ukraine and Russia are major wheat exporters. They are both a source of relatively cheap wheat into the key Middle Eastern market. Following the deadly Malaysian Airlines crash over eastern Ukraine last Thursday that killed all 298 souls aboard, the wheat market started to see some volatility. As news of the tragedy broke, the price of wheat spiked higher, moving from $5.3075 up to $5.6175 per bushel. On Friday, when Russian leader Vladimir Putin eluded to a potential ceasefire in the conflict, the price of wheat fell once again.
This year the Russian wheat crop is ample. Russian fears of additional trade sanctions because of the tragedy may be causing the Russians to dump wheat on the market. And, the Russian insurgents in Ukraine do not appear to be positioning for a halt in the conflict. If this conflict spreads, it could have an important impact on the all-important Ukrainian wheat harvest and crop this year.
The price of wheat has been under siege since early May.
The chart illustrates recent action in the price of CBOT wheat. The price of wheat has dropped 29.44% in the last three months. The price is oversold with stochastics at 20.9 and the relative strength index at 31.42. September wheat futures closed on Monday, July 21, at $5.30 per bushel, the lowest level since July 2010.
Unlike soybeans and corn, the price of wheat is not dependent only on US production. The continuing violence and uncertainty surrounding Ukraine may affect the price of wheat in the coming weeks and months. Keep your eye on Ukraine and wheat. I would not be surprised to see a relief rally in this commodity as tension continues to build. And, the growing season is far from over – the ultimate price for wheat will result from the success of crops from all over the world.