Wheat price sits at a key support level: brace for a breakdown

Wheat price came under intense pressure this week as investors remained concerned about supplies. The price dropped to $600 on Friday, lower from the recent double-top level at $764. It has plunged by more than 50% from the highest level in 2022.

Supplies concerns remain

Wheat and other commodity prices have been in a downward trend in the past few weeks. This decline happened even as the Black Sea deal ended a few weeks ago and as Europe goes through a major climate crisis.

Analysts point to a recent report by SovEcon, a Russian consultancy company that raised the supply estimates. In a report, it said that the wheat crop forecast would jump from 87.1 million tons t 92.1 million tons.

This price performance is also because Russia has continued exporting its wheat products as usual. Unlike Ukraine, Russia is the biggest wheat producer and exporter in the world while Ukraine accounts for a smaller percentage.

The most recent WASDE report had a mixed sentiment about the wheat market. It estimates that the 2023/24 season will have lower supplies, consumption, and trade. EU supplies will reduced by 4.3 million tons because of the extreme weather event in the region.

China, Canadian, Spain, and Romania will have less wheat production this year. At the same time, consumption is expected to drop by 3.4 million tons to 796 million tons. 

The key concern for wheat, olive oil, and other agricultural crops is climate change. Most European countries are going through a major dry spell, leading to lower water and crop production levels. Therefore, from a fundamental perspective, there is a likelihood that prices will bounce back in the next few months.

Wheat price forecast

Wheat chart by TradingView

In my last article on wheat prices, I warned that there would be more volatility. At the time, I predicted that prices would pull back to about $590. This forecast was accurate since wheat is now trading at $604. 

On the daily chart, the price has formed a double-top pattern at $764 and a neckline at $618. In technical analysis, this pattern is one of the most bearish patterns in the market. It has moved below the 50-day moving average.

Therefore, there is a likelihood that wheat will have a bearish breakout as sellers target the key support level at $500. This view will be confirmed if the price drops below the key support level at $583.

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