Wheat Currently Favors Buyers, but Weather Will Ultimately Dictate Market

Wheat prices are down about 9% year-to-date, offering buyers a reprieve from last year’s price spike. Nonetheless, weather will remain a driving factor in terms of dictating prices moving forward.

A confluence of factors will continue to weigh on agriculture prices for the rest of the year, namely changing weather patterns, while other factors, such as geopolitical risk, continue to play out. Of course, last year, that was Russia’s invasion of Ukraine, which saw wheat prices surge.

Elevated prices have been dissipating over the past year after that initial surge with macroeconomic forces helping to apply downward pressure.

“A combination of lower futures prices, a break in dry bulk freight prices, an increase in planted area, and the potential for a weaker dollar all point to a wheat market that has turned to favor buyers after two years of price risk,” the U.S. Wheat Associates (USW) noted. “Though it is the most unpredictable of all the factors influencing U.S. wheat prices, the weather is arguably the most critical component in determining U.S. wheat production and price.”

Get Wheat Exposure as Weather Changes

As mentioned, with all the push and pull of various forces on wheat’s prices, weather will still be a main catalyst. Market experts are already forecasting lower supply based on incoming data.

“The market has already begun to weigh the impact of the shifting weather patterns,” the USW added. “The Australian Bureau of Agricultural and Resource Economics and Statistics has already lowered 2023/24 wheat production estimates by 28% to 28.2 MMT in response to the new weather data.”

The USW also mentioned that increased moisture in the U.S. Southern Plains will brighten the production outlook in the U.S. specifically. This will help bring down prices domestically, but due to the fickle nature of weather, the USW said “the actual impacts will not be known until well into the 2023/24 marketing year.”

Given the weather and geopolitical factors, getting wheat exposure can offer investors a non-correlated asset that, as mentioned, can serve as an inflation hedge or an asset diversification tool. One fund to consider is the Teucrium Wheat Fund (WEAT), which offers an easy way for investors to gain exposure to the price of wheat futures in a brokerage account.

For more news, information, and strategy, visit the Commodities Channel.