Wheat price has been in a strong bearish trend in the past few months as investors react to the changing supply and demand dynamics. Wheat was trading at $620, which was close to the lowest level since July 2021. It has dropped by more than 52% below the highest level in 2022.
Abundant wheat supplies
The main reason why wheat prices are falling is that the world is sitting on abundant supplies as the Black Sea Initiative holds quite well. This means that Ukraine and Russia are all exporting substantial amounts of wheat even as the war rages on.
In a statement, the Chief Investment Officer at Teucrium Trading argued that Russia is benefiting more than Ukraine with the deal. He said that Russia exports four bushels of wheat for every one bushel that Ukraine sells.
At the same time, Russia has significantly higher wheat inventories than before. Inventories stands at about 80% higher than the five-year average. This is notable since the next harvest in Russia will start in the next few weeks. Russia’s wheat is seeing the lowest prices in Europe.
The most recent WASDE report called for higher wheat supplies and reduced domestic usage in the US. Supplies in the US are expected to jump by 5 million bushels. The report added:
“The global wheat outlook for 2022/23 is for increased supplies, higher consumption, and reduced trade and stocks. Supplies are raised 0.7 million tons to 1,061.1 million, primarily on higher beginning stocks for Syria and increased production for Ethiopia. Global consumption is increased 2.9 million tons to 796.1 million.”
Wheat price prediction
Wheat chart by TradingView
On the daily chart, we see that wheat prices have been in a strong downward trend in the past few months. As a result, wheat remains below the 25-day and 50-day exponential moving averages. Most recently, the price of wheat has moved below the important support level at $720, the lowest level since December last year.
The MACD has moved below the neutral point of zero while the Relative Strength Index (RSI) is below 30. Therefore, as I wrote in this article, I suspect that wheat prices will continue falling in the next few weeks as sellers target the key support at $550.
In the long term, however, I believe that the climate change issues will help push wheat prices higher as the population growth converge with falling yields.
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