There are a number of political commodities in the market. Crude oil is political because of the ‘oligopoly’nature of the biggest producers. By this, OPEC itself is responsible for more than 50% of all crude oil produced in the world. Soybeans and corn have also become huge political because the United States is the biggest producer and China is the biggest consumer. What many traders don’t realise is that wheat is another big political commodity. The reason for this is that wheat is used to prepare bread, which is one of the most common foods in the world. The biggest producers of wheat are also important with China, Russia, and India leading the way.
This year, the price of wheat has
risen the most among the agricultural commodities. YTD, wheat has gained by
more than 24%. This is a bigger gain than commodities like cotton and corn that
have gained by 10% and 2% respectively. Soybeans has declined by almost 5% this
year.
The reason for the upward trend
in the price of wheat was that the demand for wheat-made products has continued
to rise. At the same time, the supply has been relatively constrained. Indeed,
the last world Agricultural Supply and Demand Estimates (WASDE) said that:
The outlook for 2018/19 U.S. wheat this month is for unchanged
supplies, lower exports, and higher ending stocks. Wheat exports are lowered 25
million bushels to 1.0 billion with all of the reduction in Hard Red Winter
(HRW) on historically low exports for this class in the first half of the
2018/19 marketing year (MY). The reduction in HRW is partially offset by higher
exports of Hard Red Spring and Soft Red Winter. Projected 2018/19 ending stocks
are raised 25 million bushels to 974 million, which are still down 11 percent
from last year.
While the increase in price could
continue in the coming year, the reality is that wheat is a cyclical commodity.
This means that as the price rises, more farmers tend to move to the commodity.
This is more so because wheat crop takes about three months to grow. As more
farmers move to the crop, the supply tends to increase, which leads to a lower
price.
The price of wheat has moved
closer to the YTD high of $5.38 per bushel. The price is below the 20-day
moving average channel while the RSI has continued to move lower. As the year
comes to an end, the price could continue to ease as traders start positioning
for the coming year.
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