Wheat prices break out on the upside after the WASDE report

By: Faith Maina
Faith Maina
Faith strives to break down complex developments so investors can make better informed decisions. When Faith is not immersed in the… read more.
on Dec 11, 2020
  • Wheat prices break out on the upside to trade at $605.77.
  • Wheat prices have been wavering today as December's WASDE report was not bullish enough.
  • Investors are banking on China's continued rise in wheat consumption.

After wavering for the better part of today, whet prices’ break-out on the upside is apparent. As at 13.54 GMT, wheat futures were up by 1.35% to trade at $605.77. Investors seem to have looked past the predicted increase in global wheat production. The bulls’ focus is on China’s imports and the lowered US supplies.

wheat prices

On a 4-hour chart, wheat prices’ break-out on the upside has come after wavering for the better part of today. The market has been reacting to Thursday’s WASDE report, which was not bullish enough. According to the US department of agriculture, the commodity’s average farm price remains at $4.70 per bushel.   

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At the global level, the 2020/21 wheat outlook includes an increase in supply. The forecast also comprises higher exports and consumption, and a reduction in stocks.

The department adjusted its estimates of global wheat supplies by +1.2 million tonnes to 1074.3 million tonnes. The adjustment followed the increase in global production, which is currently at a record 773.7 million tonnes.

USDA expects Russia, Canada, and Australia to record increased production in the 2020/21 crop season. In Australia, production is likely to rise by 1.5 million tonnes to reach 30 million tonnes. As for Russia and Canada, the agency predicts that the wheat output will increase by 500,000 tonnes and 0.2 million tonnes respectively.

In the US, the department’s December outlook for the 2020/21 season comprises a slight reduction in supply, increase in exports, and stagnant domestic consumption. Lower imports have contributed to the reduction of supplies by 5 million bushels.

On the other hand, the agency has adjusted exports by +10 million bushels. Shipments of white wheat have been on the rise. Conversely, those of the Hard Red Winter have been lower over the past weeks. Sales of the white wheat have largely been to countries in east Asia.     

With regards to the USDA’s report, Price Futures Group’s vice president, Jack Scoville said, “The report wasn’t bearish but the reaction was less bullish than we were anticipating.”

China is the largest importer of agricultural commodities. Subsequently, investors looking to invest in commodities are banking on China’s continued purchase of agricultural goods. As indicated in the WASDE report, the forecasted rise in global wheat consumption is largely due to the heightened use in China, the European Union and Australia.

The agricultural department has estimated that China’s wheat consumption will be up by 3 million tonnes to reach 24 million tonnes. The figure would be its peak residual and feed usage since the 2012/13 season. Imports by the Middle Kingdom have surpassed those of the previous year. If the figures reach the predicted 8.5 million tonnes, it will be the highest amount since the 1995/96 period.   

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