In a March 13 Barchart article on the March World Agricultural Supply and Demand Report, nearby CBOT May wheat futures were at the $6.91 per bushel level. On April 5, 2023, the price was virtually unchanged.
Wheat is the primary ingredient in bread, which feeds the world. The CBOT soft red winter wheat futures contract is the most liquid benchmark for the grain. Over the past weeks, the nearby May contract has been hovering around the $7 per bushel level, with the new crop September contract at a premium.
The war is bullish for wheat prices, with inflation and fertilizer supplies adding to the upside pressure. I remain bullish on wheat but will only buy on price weakness as the 2023 crop year begins.
The Teucrium Wheat ETF (WEAT) tracks a portfolio of CBOT wheat futures higher and lower.
CBOT wheat is trading in a range at the bottom end of a bearish trend
CBOT soft red winter wheat has been in a bearish trend since the continuous contract reached a record $14.2525 high in March 2022.
The chart highlights the pattern of lower highs and lower lows that took May CBOT wheat futures to a $6.54 per bushel low on March 22. Meanwhile, the leading wheat futures market has been trading on either side of the $7 per bushel level over the past weeks.
The KCBT-CBOT spread remains bullish for wheat prices
We have been tracking the KCBT-CBOT wheat spread, which was around the $1.10 per bushel level, with a premium for the KCBT hard red winter wheat contract over the CBOT soft red winter wheat contract on March 13. In that article, I wrote:
Another bullish sign for wheat is the spread between the KCBT hard and CBOT soft red winter wheat contracts. U.S. wheat consumers that manufacture bread tend to price using formulas tied to the KCBT wheat futures. Over the past decades, the average premium for KCBT over CBOT wheat has been in the 20-30 cents per bushel range. When the premium falls or becomes a discount, it indicates few supply concerns. When it rises, it signifies increased consumer hedging because of price and supply concerns. On March 10, the spreads indicate significant concerns:
- The May KCBT-CBOT spread ({KEK23}-{ZWK23}) was at an over $1.10 per bushel premium for the KCBT wheat futures.
- The new-crop September KCBT-CBOT spread ({KEU23}-{ZWU23}) was at an 85.0 cents per bushel premium for the KCBT wheat futures.
The while the market is optimistic above the new-crop corn and bean supplies, it remains very concerned about wheat production.
The chart ({KEK23}-{ZWK23}) shows at over $1.30 per bushel premium for KCBT wheat; the spread has increased.
The new-crop September spread ({KEU23}-{ZWU23}) moved from 85 cents on March 13 to the $1.34 level.
The upward trajectory of the KCBT premium over CBOT wheat is a bullish sign that indicates supply and price concerns in early April 2023.
The March WASDE report was not bearish
While the USDA left the U.S. supply and demand outlook unchanged in the March World Agricultural Supply and Demand Estimates Report, the USDA lowered its global ending stocks level by 2.1 million tons to 267.2 million on smaller inventories in China.
Source: Statista
As the chart highlights, China is the world’s leading wheat consumer.
The USDA will release the April WASDE report on April 11 at noon EST.
WEAT holds a portfolio of CBOT wheat futures contracts
The fund summary for the Teucrium Wheat ETF product (WEAT) states:
At $7.02 per share on April 5, WEAT had $173.197 million in assets under management. WEAT trades an average of 618,721 contracts daily and charges a 0.22% management fee.
WEAT’s portfolio holds several CBOT wheat futures contracts, excluding the nearby contract, to minimize the risks of rolling one contract to the next on expiry.
WEAT is an alternative to the futures that track CBOT prices
The most direct route for a risk position in soft red winter wheat prices is via the CBOT futures and futures options contracts. The WEAT ETF provides an alternative for market participants seeking exposure to the grain’s price without venturing into the leveraged and margined futures arena.
Nearby CBOT wheat futures rallied from $6.54 on March 22 to a $7.24 high on March 29 or 10.7%.
The chart illustrates WEAT’s rally from $6.66 to $7.35 per share over the same period, a 10.4% increase. WEAT did an excellent job tracking CBOT wheat prices during the most recent rally.
On April 5, 2023, CBOT wheat futures were under half the price at the March 2022 record peak. The uncertainty of supplies during the 2023 crop year, the ongoing war in Europe’s breadbasket, the record high in the KCBT-CBOT wheat spread, and Chinese inventories favor the upside for the grain that is the main ingredient in bread and the other food products that feed the world.
On the date of publication, Andrew Hecht did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
