The soft red winter (Chicago) wheat (ZWH25) and hard red winter wheat (Kansas City) (KEH25) futures markets prices hit three-month-plus highs on Feb. 14. Both markets have been trending higher since early January. Wheat bulls have momentum, and there are compelling fundamental elements to suggest that there is still more upside price potential for the winter wheat futures markets in the coming weeks and months.
Wheat futures markets rallied last week due in part to the Russian consultancy IKAR revising downward its forecast for Russian wheat exports and wheat harvest for the 2024-2025 growing season. IKAR’s Russia wheat export forecast was lowered from 43.5 million metric tons (MT) to 43 million MT. The 2025 Russian wheat harvest forecast was lowered to 82 million MT from the 84 million tons previously forecast. IKAR said the slight decrease in Russian exports was due to the long distance to export destinations, poor quality of Russian wheat reserves, and the unprofitability of current export prices. The downward revision to the Russian wheat production forecast is mainly due to lack of precipitation and severe frosts, said IKAR.
The latest USDA monthly supply and demand report (WASDE) for January, issued last week, showed no major surprises for wheat, but did contain some slightly friendly elements for the U.S. wheat markets. The agency lowered U.S. ending stocks by 4 million bushels, to 794 million, due to a slight increase in domestic food use. U.S. wheat exports remained unchanged at 850 million bushels. The average U.S. farm price for wheat remained at $5.55 per bushel. Global wheat stocks were estimated at 257.6 million MT, down 1.26 million MT from January and slightly below market expectations. USDA lowered Russian and Ukrainian wheat export forecasts by 0.5 million MT each, due to logistical constraints.
Fading Greenback Is Bullish for Grains
The U.S. Dollar Index ($DXY), a basket of six major world currencies weighted against the dollar, last week fell to a two-month low and prices are trending lower on the daily chart. A weakening U.S. dollar on the foreign exchange market is a bullish factor for U.S. wheat markets because it makes U.S. grains less expensive to purchase in non-U.S. currency. Most of the world’s agricultural trade is transacted in U.S. dollars.
Wheat Futures Markets Also Benefitting from Rally in King Corn
March corn futures prices pushed to a nearly nine-month high last week and challenged the key psychological price resistance level of $5.00 a bushel. The rally in the corn futures market began last fall and shows no signs of petering out. Veteran grain market watchers know that “King Corn” swings a heavy hammer in the grain markets and has a big influence on price action in wheat, soy complex, and oats (ZOH25) futures markets. If corn prices continue to trend higher, it’s very likely winter wheat prices will do the same.
Summertime Weather Markets
History shows that often, weather-market scares occur in the grains futures markets during the spring and summer months — which are the main planting and growing seasons for U.S. corn and soybeans. U.S. winter wheat harvesting also occurs during that time.
Weather markets in grains pop up quickly and can fizzle out just as fast. When corn or soybean (ZSH25) prices get goosed by a weather-market scare, wheat futures prices will tag along for the ride.
How to Play the Potential for a Sustained Wheat Futures Market Rally
One of my favorite trading strategies for a grain futures market whose price is just starting to trend higher on the daily chart is to purchase out-of-the-money call options on futures.
Fledgling price uptrends are initially unassuming to most traders and options’ implied volatility is lower, meaning the option will cost less than if a market were experiencing bigger daily price moves (more volatility). Presently, July soft red winter wheat futures (ZWN25) call options would be a prudent contract month to play. The soft red winter (SRW) wheat market enjoys more volume and open interest than the hard red winter (HRW) wheat futures. The July SRW options expire in late June, which takes a weather factor in the grains into mid-July, given that extended weather forecasts are fairly accurate up to two weeks out, or a little longer.
On the date of publication, Jim Wyckoff did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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