An August 20 Barchart article on the grain and oilseed markets highlighted wheat as the agricultural product in the grain sector that could be the first to bottom. I wrote:
The ongoing war in Ukraine threatens supplies from Europe’s breadbasket. Moreover, the Black Sea Ports, a critical logistical hub for grain exports, remains a war zone in 2024. The conflict could impact wheat production and distribution channels over the coming years. Supply concerns support global wheat prices at the current price levels.
Nearby wheat futures were trading at around $5.25 per bushel on August 19. At just below the $5.50 level in November, wheat prices have moved higher, but they are not running away on the upside now that the 2024 crop year has ended. However, 2025 could be a fascinating year filled with opportunities for the agricultural product that is the main ingredient in bread.
Wheat prices have trended higher since late July 2024
Nearby CBOT soft red winter wheat futures reached a bottom in late July 2024.
The daily continuous futures CBOT wheat futures contract fell to a $5.1425 per bushel low on July 29, 2024. Wheat prices had recovered since then, rising to a $6.1725 high on October 2nd and 3rd before declining to just under the $5.50 level in the second half of November. The trend from late July through early October was bullish, but it ran out of steam, and prices have trended lower over the past month and a half.
The war in Ukraine and its supply impact
Russia has intensified its war efforts in Ukraine over the past weeks as North Korean troops have joined Russian forces. The war is approaching its third anniversary, with Ukraine and Russia growing weary of the conflict.
The odds of a settlement that ends the war are growing after the U.S. election. President-elect Trump has pledged to end the hostilities, and time will tell if he can achieve his goal.
Russia and Ukraine are critical wheat-supplying countries, and the war has threatened output and crucial logistical routes. Meanwhile, tariffs under the incoming Trump administration could change trade dynamics over the coming months and years, which could impact wheat prices. Tariffs distort trade, creating oversupply in some regions and deficits in others.
The U.S. election, WASDE, and wheat prices
The November 5 U.S. election handed a landslide victory to President-elect Trump with 312 electoral college votes, a majority in the Senate, and a slim majority in the House of Representatives. The incoming president will have a mandate and a smooth path for his legislative initiatives, which could impact global trade. The bottom line is that trade issues will be one of the issues for the Trump administration. Since wheat is the main ingredient in the bread that feeds the world, it is a highly political commodity susceptible to changes in worldwide trade dynamics.
The latest November WASDE report told the wheat market:
Higher U.S. beginning and ending stocks and production and slightly lower global ending stocks present a mixed picture for wheat prices. The USDA’s wheat price projection of $5.60 per bushel is lower than the level from the October report.
Levels to watch in the CBOT wheat futures market
CBOT soft red winter wheat futures remain in a bearish trend.
The ten-year monthly chart highlights the bearish path of least resistance since the March 2022 record high. Technical support is at the July 2024 continuous contract $5.1425 low with resistance that would end the bearish trend at the May 2024 $7.20 per bushel high. At below $5.50 in November 2024, wheat remains closer to the low than the high, with the path of least resistance lower.
The KCBT-CBOT spread remains bearish- WEAT is the CBOT wheat ETF product
I like to watch the KCBT hard red winter wheat versus the CBOT soft red winter wheat spread for clues about consumer hedging and supply fears in the wheat futures market.
The long-term average for the spread ({KEZ24}-{ZWZ24}) is a 20-30 cents premium for the KCBT hard red winter wheat. The chart shows that the KCBT wheat rose to a nearly $2.50 premium to CBOT wheat when prices were at record highs for the soft red winter wheat futures. When the spread increases, it tends to be a bullish factor, indicating that U.S. bread manufacturing consumers whose price requirements for supplies are based on the KCBT price are increasing hedging activity. The spread has dropped to a slight 6.25-cent premium for the CBOT wheat futures, indicating no supply fears, which tends to be a bearish factor for the wheat futures market.
The weather across the top-growing regions worldwide will be the leading factor for the path of least resistance of wheat prices in 2025. At below $6 per bushel, fundamentals are bearish, but the weather or other factors could cause a shift to a more bullish outlook in the blink of an eye. Prices have dropped to levels with limited downside, and the upside can be explosive, as we witnessed in 2022.
As the market heads into a new crop year over the coming months, the most direct route for a risk position is the futures and futures options on the CME’s CBOT division. The CBOT wheat contract is a global benchmark for the world’s leading grain market.
Meanwhile, the Teucrium Wheat ETF (WEAT) owns CBOT wheat futures contracts on three actively trading months, excluding the nearby contract to minimize roll risks. The most recent top holdings include:
The chart shows that the WEAT ETF owns March, May, and December 2025 CBOT wheat futures contracts with equal weighting. At $4.95 per share, WEAT had around $120.3 million in assets under management. WEAT trades an average of over 564,000 shares daily and charges a 0.22% management fee. WEAT is a liquid ETF that tends to underperform CBOT nearby wheat prices on the upside and outperforms when prices move lower since the most price variance tends to occur in the nearby futures contract because of the high speculative interest.
Wheat prices are likely to remain stable to lower through the rest of 2024, and we will have to wait until 2025 to see if supply issues emerge that will drive prices higher.
