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Wheat price forecast: hedge funds still short in the era of abundance

By: Invezz
wheat price

Wheat price continued its strong bearish trend this week as concerns about global supplies rose. It slipped to a low of $514, its lowest level since September 2020. It has tumbled by almost 60% from its highest point in March 2022.

Era of abundance 

Wheat, one of the most popular agricultural commodities in the world, is going through a period of abundance around the world.

The most recent WASDE Report showed that the world will see more supplies this year. The USDA expects that supplies will increase by 0.8 million tons to over 1.05 billion tons this year. 

This growth will mostly be from countries like Australia, Russia, and Argentina. It will be offset by a sharp reduction from the European Union and Serbia. 

At the same time, the world will go through a supply deficit. The total supply is expected to be 799 million tons.

The impact of this surplus is being seen right now. For example, China, one of the biggest wheat buyers in the world, has cancelled wheat shipments from the United States. China’s private buyers cancelled 264k tons, bringing the total cancellations to 504k tons.

The cancellations mean that China can find cheaper wheat elsewhere since US wheat has historically been more expensive than that of other countries.

Further, hedge funds have remained being highly short wheat prices. The most recent COT Report by the CFTC shows that wheat speculative net positions have remained in the negative zone since October 2022. In most cases, commodity prices tend to drop when hedge funds are bearish.

wheat cot

Wheat CoT report

Wheat price forecastwheat price

Wheat chart by TradingView

The weekly chart shows that the price of wheat has plunged from the 2022 high of $1,328 to slightly below $550. It has formed a descending channel and is slightly below its upper side.

Wheat has constantly remained below the 25-week and 50-week Exponential Moving Averages (EMA). It is also sitting slightly above the key support at $516, an important support level, that it has failed to move below since October 2022. The Percentage Price Oscillator (PPO) has remained below the neutral point since August 2022.

Therefore, the outlook for wheat price is extremely bearish, with the next point to watch being at $468, its lowest level in June 2020. This target is about 12% below the current level. A move above the upper side of the channel will point to more upside.

The post Wheat price forecast: hedge funds still short in the era of abundance appeared first on Invezz

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