After a two-month slide that drove it into the red for the year, wheat is up in a rally that could have legs as the US Department of Agriculture slashes, for the second time in three years, its annual forecast for global stocks of the grain.
The action makes wheat highly watchable, as the USDA’s tightening of the global balance, "is probably flushing the wheat bears out of the markets," Sal Gilbertie, president and CEO at grain merchant Teucrium Trading.
Front-month wheat on the Chicago Mercantile Exchange is up 2% for April, hovering at $6.3010 per bushel after Friday’s three-week high at $6.4575.
CME wheat lost 6.5% in February through March, sinking the entire wheat complex into the red for 2021.
Even with the April recovery, wheat’s front-month contract remains down 1.7% on the year.
But the good news for those turning long on wheat is that the rally could be prolonged, helped by both technicals and fundamentals.
Investing.com’s Daily Technical Outlook has a “Buy” on front-month CME wheat. If the market retains its upside, then first resistance is expected at $6.3127, second at $6.3149 and third at $6.3183.
In the event of a retreat, first support is forecast at $6.3046, second at $6.3003 and third at $6.2956.
Fundamentally, drought in Canada, the second largest wheat grower in North America and the sixth largest in the world, was limiting record highs in global output.
Said Jack Scoville, who heads crop research for Price Futures Group in Chicago:
"The weather remains too dry in the northern Great Plains and in the Canadian Prairies and farmers can’t plant. The chart trends are up on the daily charts and are turning up on the weekly charts.”
But Scoville also cautioned that despite April’s price run-up, demand for wheat had been disappointing on some fronts.
“Traders had expected better North American exports due to harvest problems in Russia and parts of Europe earlier in the year,” he added.
The rally in April comes after the WASDE, or World Agricultural Supply and Demand Estimates, report from the USDA forecast global wheat supplies at 1.076 billion metric tons for the 2020-21 marketing year, down from a previous forecast of 1.777 billion metric tons.
While the WASDE report forecast world production at a record of 776.5 million metric tons, it put global ending stocks for wheat at 295.52 million metric tons for 2020-21, revising them lower for a sixth consecutive month.
Canadian grains analyst Cliff Jamieson, commenting on the forecast, said it marked the second time in three years that global stocks were forecast to have fallen year over year.
The estimated drop of 4.521 million metric tonnes, or 1.5% of the current crop year, also marked the largest annual drop in stocks seen in eight years, since the 2012-13 crop year.
Disclaimer: Barani Krishnan uses a range of views outside his own to bring diversity to his analysis of any market. For neutrality, he sometimes presents contrarian views and market variables. He does not hold a position in the commodities and securities he writes about.