Bullish outlook for wheat?
The price of wheat (ZW futures) declined for the third consecutive week and closed at its lowest level this year, near $745. The 2022 wheat harvest in the United States is complete, and the USDA estimates that more than 79% of the 2023 winter wheat crop has already been planted. As winter approaches and the planted crop turns dormant, it is necessary to update the supply and demand for all US wheat classes.
USDA forecasts that in 2022/23, US wheat output will reach 44.9 MMT (million metric ton), which is 100,000 MT (metric ton) higher than in 2021/22, but 9% less than the 5-year average. This is also the second lowest amount in the past 20 years. The USDA predicts that the average yield for all US wheat will be 3.13 MT/HA (metric ton/hectar), or 46.5 bu/acre (bushel/acre), a 5% increase over the previous year.
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If achieved, the most recent USDA World Agricultural Supply and Demand Estimates (WASDE) report projects that US wheat exports will amount to 21,09 MMT, a 3% decrease from 2021/22. Through the 13th week of October, the USDA reported total wheat sales of 11,2 MMT, down 8% from the same period last year.
Furthermore, the most recent USDA Wheat Outlook indicated that restricted supply and record-high wheat prices had diminished the worldwide competitiveness of US wheat.
Supply issues remain
The last ten trading days have sent the price of wheat 11% lower, nearly a record losing streak for the commodity. On March 8th, 2022, most-active CBOT wheat achieved an official all-time high of $13.63-1/2 per bushel. This is barely surpassing the 2008 record, however the 2008 increase was more gradual.
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As 2023 approaches, global exportable wheat supplies are at a critical low point. The USDA’s February forecast indicated that key suppliers’ stocks-to-use ratio would reach an all-time low by mid-2022. Therefore the Ukraine conflict was a particular shock to the market.
Prior to February, Ukraine was responsible for close to 10% of the world’s wheat exports. This figure is currently projected to be closer to 5%. Wheat exports from the world’s leading wheat producer, Russia, are much higher than they were a year ago, helping to keep prices stable. However, Ukraine’s wheat exports this month were 20% lower than a year ago.
On the other hand, investment managers have had their most pessimistic CBOT wheat outlook since May 2019. Through November, the average weekly purchase or selling of wheat by funds in 2022 was the lowest since 2008.
Technical analysis points to a further decline
Despite the rather bullish fundamental situation, the weekly chart is saying something different. Wheat has broken below the long-term uptrend line near $800, and the price also dropped to new one-year lows.
If the support near $735 is broken to the downside, we might see another leg lower, targeting the 200-week average near $665.
Wheat futures 1W chart, source: tradingview.com, author’s analysis