Wheat Market Update: Breakout Confirmed, But What’s Next?
Back on January 29th, we speculated that wheat might finally be on the verge of breaking out of its established trend and rallying significantly. Several key factors supported this outlook:
The wheat-corn relationship was nearing multi-decade support, with SRW priced at just a 60-cent premium to corn.
MATIF wheat was once again testing trendline resistance while holding support around 225/mt.
U.S. spring wheat had been trading within a narrow three-month range but was beginning to show increased volatility. Short- and intermediate-term moving averages were turning up.
Since then, the U.S. wheat market has been more dynamic than its European counterpart. Basis and futures spreads have widened, pushing SRW and HRS into bearish levels based on the percentage of carry covered, while HRW remains neutral. There are reports of increased wheat feeding, but as always, this remains one of the hardest demand components to quantify.
A Key Factor We Didn’t Mention: The USD:RUB Divergence
One aspect we hadn’t discussed in our earlier analysis—but now deserves attention—is the double bottom formation in the USD:RUB (chart inverted). The blue line in the chart below compares spot wheat futures to the forex ratio, and a clear divergence from the trend emerged when the Ruble strengthened against the U.S. Dollar while the double bottom held.
Winterkill & Global Wheat Market Conditions
That’s not to say recent winterkill events haven’t played a role in supporting wheat prices. Some key Russian wheat-growing regions, particularly around the Caspian Sea, have experienced extreme cold. The image below, shared with permission from Crop Prophet, highlights the two-week temperature forecast for Russian winter wheat areas, showing significant deviations from normal temperatures still ahead. Given that overall wheat acreage was already down, this is something to monitor.
However, despite these concerns, USDA data indicates that global wheat supply remains relatively stable. Since May 2024, projected 2024/25 global carryout levels have actually increased from 253.61 MMT to 257.56 MMT.
Navigating Headline Risk
One major factor to watch is how the market responds to headline-driven risk pricing. The Commitment of Traders (COT) report recently revealed that Managed Money has been exiting both long and short positions. In my view, this signals a market of uncertainty rather than one of conviction—a “get-me-out” mentality rather than a “get-me-in” one.
U.S. Wheat Market Still Well-Supplied
While the global wheat market has tightened to multi-year lows, the U.S. wheat market remains well supplied as evidenced by basis levels and futures spreads. The USDA’s latest ending stocks estimate of 794 million bushels would mark a five-year high. At this stage, it’s questionable whether there’s enough time for global developments to significantly impact the U.S. wheat supply and demand outlook for 2024 marketing year ending May 31st.
Final Thoughts
So, where do we stand? The market did break out higher, supported by many of the factors we initially outlined. However, the most notable driver appears to be a stronger Ruble, which has made U.S. wheat supplies look more competitive. U.S. export sales have strengthened since the start of the year—whether due to causation or coincidence remains up for debate.
As always, we’ll be keeping a close watch on market movements and key drivers in the weeks ahead.
Garret Brown
Founder | Market Advisor
Having grown up on a farm, Garret respects the wide range of skills needed to run a successful operation and recognizes farmers are often stretched thin trying to do it all. This understanding, along with his affinity for markets, fuels his drive to make tough marketing decisions simpler for farmers.
Leveraging his experience in grain origination and margin management, Garret analyzes technical and fundamental market information. With the assistance of CODAK’s algorithmic signaling platform, he puts together buy/sell recommendations while working with the CODAK team to create strategies that accommodate each farmer’s personal risk tolerance, on-farm storage capacity, and break-evens.