Why wheat prices hit their highest level since 2012

Wheat prices topped $ 8 a bushel for the first time in nearly nine years, as demand for the commodity increases and supplies are expected to end the 2021-22 marketing year at their lowest level in more than a decade. .

“Global demand remains robust at near record levels, with overseas buyers aggressively purchasing wheat supplies in recent weeks,” said Sal Gilbertie, president and chief investment officer at Teucrium Trading.

The US Department of Agriculture estimates ending stocks of US wheat for 2021-2022 at 583 million bushels, the lowest since MY 2007-2008.

The 2021-2022 US wheat ending stocks are forecast to be at their lowest since 2007-2008. Disclosure: This graphic is for illustration purposes and does not indicate any investments.

Source: USDA and Teucrium Trading

Wheat supplies plummeted after a drought in the northwestern plains of the United States reduced production of hard red spring wheat and durum wheat, says Todd Hultman, chief analyst at DTN, supplier of ‘commodity information and analysis. The USDA estimates the 2021-2022 national wheat production at 1.646 billion bushels, down 10% from 2020-2021 – the smallest crop in 19 years, according to Hultman.

Read: “Extremes for wheat appear to be increasing”: Drought conditions soar oats, wheat and other commodities

See also the MarketWatch special report: Western Drought Watch

Tight supplies caused wheat futures to rise to their highest level of most active contract settlement since December 2012. On November 10, WZ21 prices,
+ 0.75%

+ 0.75%
set at $ 8.03 a bushel in Chicago, with prices for this session getting an additional boost from a Bloomberg report that said Russia may lift its grain export taxes. Wheat prices posted a fifth consecutive monthly increase in October.

Wheat supplies tend to be tight during the winter, Hultman says, but “predicting highs in markets where supplies are legitimately tight” is difficult, as markets can get “emotional.” The price increase will largely depend on the degree of stress end users face as they make purchases over the next several months, he says.

Chicago wheat spot prices have the potential to trade above $ 9, according to Hultman. To reach a much higher level than in 2022, the market must have more problems with drought in the spring, “a situation that we cannot yet rule out.”

Globally, the USDA forecasts ending stocks of wheat for 2021-2022 at 275.8 million metric tonnes, compared to 287.95 million metric tonnes estimated in 2020-2021.

“The world has consumed more wheat than [has] been produced over the past two years, hence the decrease in closing stocks, ”explains Jake Hanley, Managing Director and Portfolio Manager at Teucrium. “The demand is high because the main use of wheat is for human consumption,” he says.

Wheat prices held up well during the Covid-19 lockdowns “for the simple reason that people need to eat,” Hanley says. Instead of ordering garlic bread from restaurants, they bought “bulk wheat flour from Costco to cook at home.”

Gilbertie, meanwhile, stressed that “the fear of food insecurity in major wheat-exporting countries like Russia is prompting some governments to restrict or discourage wheat exports during the coming winter.”

Bad weather conditions in many critical winter wheat growing areas, including drought in Ukraine, the Middle East and the southwestern United States, are making matters worse. edge right now, ”he said.

Even so, higher wheat prices will be a “little concern” for consumers during the holidays, Hultman says. The Federal Reserve Bank of St. Louis priced a 1-pound mold of white bread at $ 1.58 in September, about 6% more than a year ago.

For wheat traders, however, it may be too late to take advantage of a possible winter price hike. “Prices may rise this winter as end users try to secure their supplies, but that doesn’t make it a good bet,” Hultman says. “Buying wheat at its highest price in nine years is not a very attractive risk / reward ratio.”

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