Medium term
Trade view / 22 June 2017 at 5:27 GMT

Which way will wheat prices wander? Watch the weather

Managing Partner / Spotlight Group
United Kingdom
Instrument: ZWN7
Price target: 501.16
Market price: 462.50

Crop concerns are set to continue to affect the south central Canadian Prairies and the north-western US Plains, as a result of the lack of soil moisture and precipitation. US spring wheat areas will not be completely dry, but more rain would be needed to undermine the recent price rally.

The 12-month chart shows spot moving above the key moving averages, However, as the small inset in the left hand chart suggests, technicals are mixed, and initially biased toward further market selling before buying resumes.

Wheat prices

Source:, Spotlight Ideas. Create your own charts with SaxoTrader; click here to learn more. 

Naturally, we must be mindful of the fact that after such a good move higher, there will be a number of players looking to take some money off the table. Indeed, such a move happened in the US yesterday and in early global trading as well on Thursday. Benson Quinn Commodities said yesterday that “the wheat complex is overbought and due for a correction".

However, look further afield and you can find plenty of reasons for concern as Europe and the Ukraine continue to endure above-average temperatures and below-average precipitation as the moisture deficit builds. I note with interest that Benson Quinn Commodities also said that the forecast for the European Union and Ukraine "is mostly dry and warm, ... increasing stress to wheat and corn crops".

I see the warm and dry conditions continuing in central and western Europe as well as across North America. The European forecast also shows the warm/dry conditions moving to Eastern Europe and western Russia, and the Ukraine over the weekend and next week.

I am looking to be a near-term buyer and would be prepared to ride out a price wobble, as I see the upside generally returning once the weak longs have been forced out. 

To support my view, I turn to the recent report from the US Department of Agriculture pegging the US spring wheat crop at 41% in "good" or "excellent" condition, a drop of 4 points, week on week.

That was by quite some distance the lowest reading for the time of year on data going back to 1995, with the next lowest figure one of about 55%, time adjusted, recorded in 1997.

Wheat six-year chart

Source: Spotlight Ideas 

Management and risk:

Parameters: Wheat July 2017 (ZWN7) 2017

Entry: Buy on a fall to 458 or a break over 470 US cents/bushel (Now 462.50, at 0446 GMT)

Targets: 483.17 ... 493.12 ... 501.16 US cents/bushel.

Stop: 452.12 US cents/bushel.

Time horizon: Medium term.

— Edited by Robert Ryan

Non-independent investment research disclaimer applies. Read more
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