Looking to the Futures: Wheat Rebounds from Two-Year Low

On a continuation basis, Wednesday's intraday low of 573.25 was last seen in December 2020. The current front month July contract (WN23) rebounded sharply early Thursday as part of a broad rally in grains. The recent weakness in the wheat market has been accompanied by lows in soybeans, which found an intraday low of 1270, last seen in December 2021. Corn found a recent bottom about two weeks ago below 550 which was also last seen in 2021, but it has since rebounded to over 600.

The recent low in wheat followed news out of Russia, the world's top exporter. The ruble has headed steadily downward since last fall, making their exports cheaper relative to their competitors. Additionally, Moscow has refrained from significantly hiking export duties despite their financial woes. The expected harvest for Russia is also expected to be high. On-farm wheat stocks were recently reported higher, at 13 million tons, twice the five-year average.

In domestic news, the USDA projected US wheat ending stocks for the 2023/24 marketing year at 556 million bushels versus the level for 2022/23 of 598 million. Thursday marked the start of the domestic marketing year for wheat, which runs June 1 – May 31. The forecasted level is the lowest since 2007/08 when it was under 400 million. Production is expected to increase 1% for the year but 7% below the five-year average. An expected decline in yields from 47 bushels/acre to 44.7 will be offset by an increase in acreage from 45.7 million to 49.9 million.

On Wednesday, the July wheat contract traded below the July corn contract. It was the first time the front month wheat contract traded below front month corn. This is a remarkable move and was based on unique macroeconomic events and supply numbers. The price inversion has since subsided, with wheat trading eight cents higher than corn on Thursday. Wheat trading around parity with corn could provide support, since livestock suppliers could turn to wheat as an input.

Wednesday's weakness temporarily pushed July corn below the 9-day moving average and below the lower Bollinger Band. Two weeks ago, the 9-day SMA touched the 20-day but the action was short-lived. The MACD is close to reversing to the positive. While Wednesday's selloff was significant, the net positive close kept the RSI out of oversold territory though it is still below 50% indicating more sellers than buyers. The Bollinger bands have narrowed since a significant selloff during the second half of April.