Wheat prices – have they reversed off the low?

Wheat prices have been in a sustained downtrend for the last six years but over recent months prices have jumped by almost 30%. However the chart below also shows a solid jump in prices in the early parts of 2013 which failed to turn the long term downtrend.

So why has wheat been strong these last few months?

There are a number of factors that have come together. The key driver of wheat prices is the global weather and how it impacts on crops and therefore supply and demand. In Australia there is the threat of El Nino developing, although in the near term much of the southwest needs to overcome extremely dry conditions. In China the country’s main wheat belt has been extremely dry and forecasts suggest conditions won’t improve any time soon. China holds large reserves and has been auctioning them off to control rapid price advances.

A secondary threat has been the unfolding of events in Ukraine. The country’s wheat crop has been growing well thanks to a mild weather, but the political unrest may see buyers reluctant to bid whilst the situation remains an unknown, however there is little evidence that the crisis is impacting on US demand.

A secondary threat has been the unfolding of events in Ukraine. The country’s wheat crop has been growing well thanks to a mild weather, but the political unrest may see buyers reluctant to bid whilst the situation remains an unknown, however there is little evidence that the crisis is impacting on US demand.

All grain markets, including corn and soybeans, have been heading higher recently but new bullish information is required to keep the momentum flowing. The next significant crop report will be released on March 31 and could be the impetus needed to push prices further.

Technically the major level 650 was not only attained but was well exceeded. Whilst it is too early to call a significant low point, there is building evidence that one may have been locked in. Some more posturing in this area, and even another brief dip, would be viewed as healthy for a long term bottom. If prices can penetrate 800 we would assume the commodity based hedge fund will start buying with hopes of increased upside momentum and that demand may see prices advance toward moderate resistance at 1000.

Nick Radge heads a team of technical analysts at The Chartist, reviewing individual stocks and markets. AFSL 288 2000.

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