🌱Wheat close to 9-month highs. Is draught in Russia and Ukraine a key reason?

The wheat market (WHEAT) posted very strong gains yesterday, despite data suggesting an improved harvest in the Kansas region. This is mainly due to growing concerns about poor harvests in Europe; particularly in Russia. Soybean (SOYBEAN) prices have also been on the rise recently, as flooding and forecasts of more rainfall in Brazil fuel fears of global crop losses. On the Chicago CBOT commodity exchange, winter wheat futures gained nearly 5% yesterday and saw a jump from around $650 to over $690 per bushel. 

• Since March, the wheat market on both sides of the Atlantic (MATIF, CBOT) has remained tight, with weather conditions supporting upward momentum on the heavily oversold wheat contracts of recent quarters. 
• For several weeks, large speculators have been forced to close short positions, adding to the momentum of the ongoing price increases. Today, however, sellers are gradually coming to the fore. Now the uptrend is being tested again near the medium-term psychological resistance level at $700 per bushel.
• However, crop satellite imaging company Maxar Technologies expects the drought and unfavorable conditions for wheat yields in the Black Sea region to continue. Not only bad weather but also war strains global grain supply
• The wheat market saw a sharp decline; driven by an expected improvement in weather and yields in Kansas; the largest state producer of winter wheat in the US. However, this was not enough to stop increases driven by global factors.
• Friday's crop survey in Kansas predicted better-than-average yields. Yield potential in Kansas was estimated at 46.5 bushels per acre after surveying 449 fields over three days. The reading was the highest since 2021 and above the five-year average of 42.4 bpa for 2018-2023. Despite the overbought and fulfilling wheat price correction scenario forecast by Brugler Marketing and Management, bulls quickly returned to the CBOT.

Net positioning is the highest since the last quarter of 2022. Large speculators have been covering their high short positions, which additionally fueled price rebound. Source: Bloomberg FInance LP, XTB

Weather ‘rules’ heat up wheat market again

• Russia's crop estimates have been revised downward again this year due to the weather. A revision by IKAR yielded lower-than-previous expectations for the 2024-25 wheat harvest and a 10% drop in May. The market in Russia has been hit by prolonged frost and now drought. 
• The USDA estimates. that Russia - the world's largest wheat producer and exporter - faces a nearly 4% year-on-year decline in production this year. Significantly, it was the country's record harvest that caused a strong oversupply in recent quarters and helped 'disinflate' agricultural products, including wheat. Global prices have sought to be competitive with Russian markets for several months.
• Now forecasts call for wheat ending stocks to fall to their lowest level in nine years. Argus Media points to a lack of rain in Ukraine and Russia, and May frosts in both countries, as the direct cause of the price rebound. As a result, CBOT contracts have been supported by speculative fund purchases, as well as those hedging supplies. 

WHEAT chart (H1)

Source: xStation5