WHEAT near 3-month high amid US-China talks. Falling Russian export, weakening US dollar and rising corn prices in focus

Wheat futures (WHEAT) on the Chicago Board of Trade (CBOT) climbed to a three-month local high as traders remained cautious amid the risk of a trade war between the US and China. However, this is likely not a major direct price factor at the moment. Investors welcomed Beijing’s current approach as a positive signal, potentially avoiding a major escalation. Still, China has imposed tariffs on US agricultural equipment. But what does this mean for the grain markets?

It is clear that US-China trade tensions could impact agricultural products such as wheat and soybeans. Currently, China is the world’s largest importer of soybeans and a major buyer of wheat and corn. However, traders consider Chinese tariffs on US wheat unlikely for now, as reflected in rising CBOT wheat prices. Meanwhile, a declining US Dollar Index is improving the competitiveness of US grains in global markets.

Severe Drought Conditions in the US

According to NOAA data, 45 US states are currently experiencing moderate drought conditions. Weather expert Art Douglas has highlighted serious challenges for US agriculture, citing NOAA data:

• Worsening drought across most of the country, with a very dry spring increasing the risk of moisture loss for key crops.
• A summer of extreme temperatures and wildfires, especially in the Western US, alongside uncertain oceanic conditions, which could impact weather patterns in the second half of the year.

If these conditions materialize, US grain markets—including CBOT wheat, corn, and soybeans—could experience upward price pressure due to a weather premium in winter/spring. However, long-term weather forecasts are rarely precise.

Falling exports from Russia and rising corn prices

Even more importantly, rising US corn prices are exerting upward pressure on wheat. Another key factor for wheat traders is the potential decline in Russian and Ukrainian wheat exports. According to major food and development organizations, a 50% reduction in Russian exports and a cut in Ukrainian exports could lead to wheat prices rising by 34% and 19%, respectively. These factors combined indicate a strong risk of supply disruptions, which could further support wheat prices in the coming months.

CORN vs WHEAT

The chart below shows that CBOT wheat rises not as fast as CBOT corn futures, but the pattern seems to be quite simmiliar. .In the week ended in January 28, Managed Money (major speculators) increased their net long positions on CORN to 350k contracts vs 311k in the previous week (the highest net long position since May 2022). On the other hand, Managed Money still holds a significant net short position of -106,391 contracts (79,797 long vs. 186,188 short) on CBOT wheat. Producers, Merchants, and Processors hold 74,777 long vs. 57,751 short contracts, meaning they are net long suggesting that commercial players expect higher wheat prices.

Source: xStation5

US corn inventories are falling. Rising corn prices on CBOT may put upward pressure on wheat prices, mainly due to several factors as corn and wheat are substitutes in animal feed production. So when corn prices rise, livestock farmers and feed producers may increase wheat usage, boosting its demand. This effect is particularly noticeable when corn stocks are low or during periods of strong feed demand. Higher corn prices may encourage farmers to increase corn acreage at the expense of wheat. This can lead to a reduction in wheat supply in the future, which puts upward pressure on prices. Source: Bloomberg Finance L.P.

WHEAT (D1)

Wheat tries to reverse the trend rising above EMA200 with positive signals from MACD and RSI levels. A key level to monitor is  now $600 and $620. Rising above those levels may suggest that wheat prices can enter the recovery phase.

Source: xStation5