Wheat Futures taking a breather?

Source:sutadimages, Shutterstock

Summary

  • Global production of Wheat hit record levels in March 2021 thanks to bumper crop in Australia.
  • Wheat Futures prices soared during June 2020 to January 2021 and witnessed a gain of ~48 percent.
  • Despite the recent correction, Wheat Futures prices are still sustaining above an upward sloping trend line, depicting a positive trend for the commodity.
  • The 21-period SMA is above the CMP acting as an immediate resistance for the commodity, however, the 50-period SMA is below CMP and providing support on the lower levels.

Global Wheat production has increased to new record levels in March 2021 due to bumper crop in Australia. As per the latest report released by USDA (United States Department of Agriculture/ Foreign Agricultural Service), global trade has reached a record with higher imports for China, Pakistan, and Nigeria and higher exports for Australia and Canada. The projected U.S. season-average farm price remains at USD 5 per bushel.

Image Source: © Baks | Megapixl.com

Global Production and Consumption Outlook

As per the data published by International Grains Council, the estimate for global Wheat production for 2020/21 remains at 774.2 metric tons, higher by ~1.60 percent as compared to 2019/20. However, at the same time, the global consumption estimates for 2020/21 s increased by ~2.31 percent to 760.3 metric tons.

The forecast of global Wheat production for the year 2021/22 is at 789.6 metric tons, higher by 15.4 metric tons or ~1.99 percent as compared to the 2020/21 estimate whereas the consumption is expected to remain at 777.6 metric tons, higher by 17.3 metric tons as compared to 2020/21 estimate.

The below chart represents production and consumption details of wheat for the past 4 years coupled with the estimate for 2020/21 and forecast for 2021/22:

Data Source: International Grains Council

Price Action Analysis (on the monthly chart)

CBOT Wheat Futures (COBT: ZWc1) started to move upside from the latter half of June 2020 and made a series of higher highs and higher lows till mid of January 2021. Prices soared from the low of USc 468.25 per bushel to the high of USc 693.00 per bushel and witnessed a gain of ~48 percent.

However, the prices reversed from the higher levels after forming a negative divergence with the RSI (14-period), a scenario where prices make higher highs, but RSI (14-Period) fails to do so, and corrected ~14.39 percent from the January 2021 high to USc 593.25.

Despite the recent correction, prices are still sustaining above an upward sloping trend line (orange color line in the below chart) depicting a positive trend for the commodity. The upward sloping trend line is playing an important role for Wheat futures as prices have bounced upside 4 times.

What are the technical indicators pointing to?

The leading indicator RSI (14-period) is trading at ~51 levels, indicating a positive trend for the commodity. The trend-following indicator MACD is showing a negative divergence and depicts a negative stance for Wheat Futures. The 21-period SMA (green color lien in the above chart) is trading above the CMP acting as an immediate resistance for the commodity, however, the 50-period SMA (red color line in the above chart) is sustaining below CMP and providing support on the lower levels. The summary of technical indicators is as below:

Currently, the prices are trading around the crucial support level where upward sloping trend line support and 50-period SMA rests. An upside move from the current level may end the correction phase of the commodity; however, a downside breakout might bring a fresh downside trend for the commodity.

Considering the above-mentioned production and consumption scenario coupled with the technical analysis, the market seems to expect the prices to remain rangebound for the short term. However, a breakout of the crucial level may bring a new trend for the commodity.


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