Wheat on the Higher Side to Start Wednesday

Wheat futures posted gains across all exchanges on Tuesday, extending into Wednesday, largely attributed to short covering activity. Strong international demand, highlighted by Algeria's nearly 600,000 MT purchase and South Korea's 50,000 MT acquisition from the US, underpinned the market despite US winter wheat planting lagging average and a significant year-over-year decrease in EU wheat exports to 4.12 MMT.

Analysis

Wheat futures are exhibiting upward price momentum, with gains across the CBT, KC, and MPLS exchanges driven primarily by technical short covering. This is evidenced by a decrease in preliminary open interest for CBT soft red wheat by 2,304 contracts and for KC HRW by 606 contracts. The bullish sentiment is fundamentally supported by strong international demand, highlighted by a significant purchase of nearly 600,000 MT by Algeria and a 50,000 MT import by South Korea from the US. On the supply side, the market is digesting a notable drop in European Union wheat exports, which totaled 4.12 MMT from July 1 to September 21, a steep decline from 6.13 MMT in the prior year, suggesting less competition for US exports. This is coupled with a slightly delayed US winter wheat planting season, which is 20% complete and 3 points behind the average pace, although emergence is on par with norms. The US spring wheat harvest is progressing as expected, at 96% complete.

Key Decisions for Investors

• The current rally is supported by both technical short-covering and strong spot demand; investors should monitor weekly export sales data to gauge if fundamental buying can sustain the upward momentum.
• The significant year-over-year drop in EU wheat exports presents a key bullish catalyst for US wheat prices, potentially creating a favorable environment for long positions in wheat futures or related ETFs like WEAT.
• While the demand picture is strong, the slower-than-average US winter wheat planting pace is a critical variable to watch, as any acceleration to catch up to the 5-year average could temper price gains.