Wheat Stays Resilient Despite China's Order Cancellations

Even though the broader picture reveals a downtrend since Russia’s invasion of Ukraine in 2022, wheat prices are staying resilient amid more headwinds. China recently canceled orders on that grain exported from the U.S. in what appears to be a cost-cutting effort.

“Those cancellations show that China can get wheat cheaper from others,” said Ben Buckner, chief grains analyst for AgResource Co.

According to a Bloomberg report published on Yahoo Finance, the U.S. Department of Agriculture noted that “private exporters exited purchases of 264,000 metric tons of US soft red winter wheat to China.” The report noted further that this was “the third straight session with such an announcement, bringing the cancellation total to 504,000 tons, the most in USDA data going back to 1999.”

In turn, the grain’s futures fell to an intraday low not seen since August 2020, but eventually recovered. Much of that recovery has been due to institutional trading activity, namely covering short bets as money managers took advantage of the downtrend in prices.

As far as the cancellations go, some market experts think that more could be on the way given shipping constraints from U.S. wheat due to issues at the Panama Canal. Per an Ag Web article, Kevin Duling of KD Investors expects China to “cancel the rest of the tender they bought last fall from the United States, which is around 600,000 metric tons.”

Brazil Wheat Exports Off to Blistering Start

Tempering China’s order cancellations is Brazil’s exports picking up, especially in the early going of March. According to Fast Markets, the average daily shipment rate was over 160% higher versus a year ago.

“Brazilian wheat exports reached 416,656 tonnes in the first week of March, while in the same month last year, exports amounted to 607,935 tonnes,” the report said, confirming that the “daily average shipment rate amounted to 69,442 tonnes last week, 162.7% above the 26,324 tonnes registered in March 2023.”

Given the various global factors affecting the wheat, patience will be necessary unless additional supply shocks can propel the grain’s prices higher. If that’s the case, short-term traders may want to look at 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. Long-term investors looking to simply add wheat to their portfolio as a diversification component can use any current weakness to get exposure to wheat at a value-oriented price.

WEAT offers the ability to get exposure to wheat futures without having a margin account. Additionally, the grain can also serve as an inflation hedge should consumer prices continue to rise unexpectedly.

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