While soybean and corn contracts are losing today, wheat (WHEAT) contracts are trading up and have approached a key long-term resistance (SMA200). Data from Chicago's CBOT commodity exchange indicated that commodity funds were still net buyers of wheat contracts yesterday, with corn and soybean positions sold off at the same time.
- Farmers in the US are expecting the weakest wheat harvest in 60 years. Up to 1/3 of the US winter wheat crop will be abandoned this year due to unprofitable production after the drought. This is the highest rate of crop abandonment since 1917 and beats even the record droughts of the 1930s;
- The forecast for the southern Great Plains where the wheat crop predominates indicates further drought. Record crop abandonment rates are estimated in Texas, Oklahoma and Kansas - the largest wheat producer in the U.S.; and the U.S. is expected to continue to see record crop abandonment;
- The United States expects domestic consumption to be met but exports could slow significantly. It is also unclear to what extent the limited wheat supply will affect prices and inflation in the months ahead;
- The USDA expects that limited supply and a water level problem in the Panama Canal could reduce U.S. wheat exports (the States are among the top five global exporters). In Panama, the worst drought in more than 100 years means that record low water levels in the isthmus could persist until mid-July, hampering the passage of major grain-carrying vessels.
- Data provided by Chinese meteorologists also point to drought and lower wheat yields in China, and equally damaging to crops, huge downpours in areas where rice crops predominate.
- The Ukrainian side indicates that the grain deal in July will almost certainly not be renewed by Russia because Russia no longer needs Ukrainian ports for ammonia shipments.
- The prospect of drought and several factors disrupting supply chains (Black Sea, Panama Canal) may favor wheat's rally even though its global production was expected to be at a record high this year.
WHEAT chart on the D1 interval. Wheat futures have been on an almost uninterrupted upswing since the beginning of June and have reached a key resistance near the SMA200 (red line) at $746. If the resistance is overcome, the rally could extend in an extreme case even to $1,000 where we see the 38.2 Fibonacci retracement of the 2019 upward wave. Source: xStation5
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