WHEAT: Collapse of Grain deal and bad weather threaten Global suppliesNov 4, 2022

Wheat prices were already rising before Russia invaded Ukraine and subsequent concerns about availability, according to UBS. However, prices eased somewhat in the second quarter of 2022 on prospects of renewed Ukrainian grain shipments through the Black Sea “trade corridor” deal. Seasonal grain harvests in the Northern Hemisphere also eased supply-side concerns despite production problems in China, the EU, and the US.

At the end of the year due to geopolitical developments as well as weather-related downgrades in Argentina and Australia. Reports that Russia has pulled out of the deal earlier (it was originally set to expire in mid-November), with the Kremlin saying it will not negotiate a new deal, add further risks, according to the Swiss bank, which is also moving higher revision of price estimates.

Specifically, they raise the wheat price forecast to $9.50 per bushel at the end of March (from $8.25), to $9 per bushel at the end of June (from $8), and $8. per bushel at the end of 2023 (from 7.5 dollars).

As they report, in terms of data, the US Department of Agriculture significantly lowered the estimate for the country’s production to 44.9 million tons (previously 48.5 million tons) in October. Drought dominates the lower Midwest, with good to excellent crop condition scores for winter wheat possibly the lowest on record. In addition, the low level in the Mississippi also limited exports. The house’s analysts forecast Argentina’s production to be 15-16 million tons (vs. 22.5 million tons in 2021-2022) due to severe drought.  

In Australia, the La Niña phenomenon has caused widespread flooding on the east coast, which increases global risks to both production and the quality of the final product. At the same time, China and India’s output was unchanged in October, despite lower drought forecasts.

From an Elliot wave perspective, and according to the lack of supply of grains at least this year, we could analyze the monthly chart for this basic upcoming upward scenario for wheat.

WHEAT: Collapse of Grain deal and bad weather threaten Global supplies. Monthly Chart
Wheat Monthly Chart

The monthly chart shows us two close peaks with the recent one on March 2022 at $1363,4. Thereinafter, we can see a sharp decline to the 61,8% Fibonacci retracement level based on the (III) wave against $418. This wave is considered the (IV) of the ((V)), but we are not sure if it has been completed yet – because we cannot see a 3-sequence mode – or if it will prevail over the guideline of alternation in Elliot wave Theory, so to be constructed a sideways corrective pattern like a triangle. Also, another supportive tool for expecting an upward move is that of the Stochastic RSI indicator which is at its bottom and shows, at least for now, an oversold market.

On the other side, an alternative scenario due to the result of the Russia – Ukraine war will be the ending of the war and the automatic balance of the supply chain, which in turn will let the prices drop to the level of the end of ((IV)) wave. In such a scenario, the ((IV)) will be completed then, having made a nice expanded flat.

by Stavros Chanidis

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