Ten days after India shocked the world by banning exports of the second-largest producer, grain prices have eased somewhat, though not enough to weigh their upward trajectory.
Wheat charts continue to flash, with a bushel on the Chicago Stock Exchange warning of all-time rising red signals of $ 13-14, even though they have cooled below the $ 12 high since India’s ban was known.
The technical film reinforces the basic story for wheat. Two days after the ban was announced in New Delhi on May 16, the US Department of Agriculture (USDA) has forecast an average farm price of wheat of $ 10.75 per tonne for the 2022/23 season. He called them “tight national reserves.”
Although the farm price is a different measure than the Chicago futures, it reflects higher cash and futures rates for wheat and reflects uncertainty in world markets.
The USDA has set the final global wheat reserves for the 2022-23 season at 267 million tonnes, the lowest in six years, well below the analyst estimate of less than 272 million.
“Even though global wheat prices are trading high at this time of year, if we were to be guided by the US government’s new forecasts, market participants could have been more optimistic about next year’s supply opportunities,” Reuters grain analyst Karen Brown said in a May 13 post.
“But compared to the estimated global demand, the supply of wheat for the coming cycle is dangerously low and much lower than it was this year,” he added.
With the exception of China, global wheat stocks for 2022-23 are projected to fall from 16.4% to 14.9% this year, the fourth-lowest level, Brown noted. The record high of 14.3% in 2007-08 was 19% for the middle of the last decade.
The USDA itself says that production is expected to be slightly higher in 2022/23 than in the previous year. However, production will be the second-lowest in the last 20 years due to widespread drought in key growing areas of hard red winter wheat. While domestic consumption and exports are expected to decline over the previous year, final bookings are expected to decline again.
“This could keep wheat prices high by 2023, affecting food prices for consumers around the world and ensuring continued higher costs for importing countries,” says Brown, adding that wheat stocks are at greater risk by 2022-23.
After Russia’s invasion of Ukraine on February 24 turned the world wheat market upside down, the U.S. wheat futures market had already reached $ 13.40 a bushel on March 4. Prior to that, Russia and Ukraine jointly distributed 30% of the world’s wheat from the vast and fertile agricultural lands of the Black Sea region known as the “bread basket of the world.”
Chicago wheat traded below $ 10 a bushel on April 4, despite signs of a slight relief in exports from the Black Sea to post-war Ukraine, despite a shortage of supplies.
India’s ban, announced on Friday, took the market in a different direction. The ban was announced after heat waves destroyed the wheat crop of the world’s second-largest producer, which produced 107.59 million tonnes in 2020. This is more than the 85.9 million tonnes produced by Russia and 24.9 million tonnes produced by Ukraine separately. The “breadbasket” countries accumulated 110.8 million tons of global supplies, compared to China’s 134.25 million, the first producer.
India has started exporting 10 million tonnes of wheat in 2022-23 after importing countries to fill the vacuum following Russia’s war with Ukraine. But when unprecedented heat waves pushed temperatures above 50 degrees Celsius and damaged wheat yields across India, the government was forced to reconsider its position.
However, the Directorate General of Foreign Trade of India made a concession: Exports to countries in need of wheat for food security will continue to be allowed. Conversely, all other submissions will be blocked.
However, the embargo is putting further pressure on the global wheat export market, with India expected to be an alternative to Russia and Ukraine in the midst of this war.
During trading on Tuesday, the Chicago Board of Trade’s soft red winter wheat futures were at $ 11.93 a bushel, hitting a high of $ 12.84 on May 17, following the announcement of a ban on exports to India.
So far this year, Chicago wheat has risen 55%, making everything made from wheat such as bread, cakes and noodles more expensive, while US inflation has reached a 40-year high.
Charts indicate that Chicago wheat could set new highs in the $ 13- $ 14 range once the current consolidation is complete, said Sunil Kumar Dixit, skcharting.com’s chief technology strategist.
“Bullish speed was tested and stopped at $ 12.84,” Dixit said.
“Price action now indicates a consolidation between $ 12 and $ 11,” he said, adding that the balanced and relative strength index parameters in the daily wheat chart are strong on the neutral and weekly charts.
Dikshit says if the future of Chicago wheat is below $ 12, they could fall below the $ 11- $ 11.30 support level, and breaking below that level could push the market to $ 11.30 to $ 10.
“But as the fundamental trend has increased, buyers are likely to jump into the game once prices test those support zones,” Dixit explains.
“The wheat march may resume, revisiting $ 12.80 and breaking significantly above $ 13-13.50.”
Disclaimer: Parani Krishnan uses a variety of perspectives other than his own to bring diversity to his analysis of any market. He does not own or hold office in the goods or deeds in which he writes.
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