Wheat prices at risk of more volatility as key concerns remain

Wheat prices have plunged in the past few weeks even as tensions between Russia and Ukraine continued. After surging to a high of $764 last week, wheat has crashed by more than 16% to $640.

Russia and Ukraine crisis escalated

The biggest recent news on wheat was the decision by Russia to end the grain deal two weeks ago. That decision meant that Ukrainian wheat will find it difficult to reach to its international markets.

At the same time, Russia has started to bomb Ukraine’s grain infrastructure as the war continues. The war on trade projects escalated on Friday when Ukraine bombed some Russia’s oil export infrastructure.

All this means that the grain trade will be challenging in the next few months. Still, analysts believe that there is an abundant supply of wheat that will offset any major challenges. Additionally, Ukraine is working on alternative routes to bypass the Black Sea while Russia is boosting its trade.

The most recent WASDE report showed that supplies are expected to rise in the coming months. Supplies are expected to increase by 74 million bushels to over 1.73 billion bushels. 

The USDA expects that countries in Europe, Argentina, and Canada will see lower wheat production this year because of the ongoing drought. This decline will be offset by an increase in the United States and Pakistan. The statement added the following about demand:

“World consumption is raised 3.3 million tons to 799.5 million, primarily on increased feed and residual use in China where rains at harvest, especially in Henan province, degraded wheat quality for food use.”

In the long term, there is a likelihood that wheat prices will thrive as many producing countries go through regular droughts. In the United States, many farmers in Kansas are abandoning wheat because of extreme drought. 

Wheat prices forecast

Wheat chart by TradingView

The daily chart shows that wheat prices have been in a strong bearish trend in the past few months. Most recently, wheat erased the gains made after Russia abandoned the grain deal. 

Along the way, wheat formed a double-top pattern, which is usually a bearish sign. It has also crossed the 25-day and 50-day moving averages and is nearing the important support at $590. 

Therefore, wheat will likely continue falling in the coming days as sellers target the key support at $590. I also anticipate elevated volatility going forward, with the key resistance level being at $752.