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Traders Send Wheat Prices Spiking as Allied Tanks, Aid to Roll Into Ukraine

By Barani KrishnanCommoditiesFeb 01, 2023 09:22AM ET
www.investing.com/analysis/traders-send-wheat-prices-spiking-as-allied-tanks-aid-to-roll-into-ukraine-200634894
Traders Send Wheat Prices Spiking as Allied Tanks, Aid to Roll Into Ukraine
By Barani Krishnan   |  Feb 01, 2023 09:22AM ET
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  • After four straight weeks of losses, wheat hits near one-month high
  • Wheat’s peak comes on news that U.S. and German tanks are to roll into Ukraine
  • If the upside stays, wheat’s extended rally could begin at $8 and run to $9.50 

After four weeks in the red, wheat prices have hit their highest in almost a month as grain traders react to the news that U.S. and German tanks were to roll into Ukraine amid bigger reinforcements planned by Washington to assist President Volodymyr Zelenskyy’s army against Russia’s invasion.

The front-month wheat contract on the CBOT, or Chicago Board of Trade, peaked at $7.666 a bushel in Tuesday’s session as trading concluded for January. The last time a benchmark U.S. wheat contract was higher was on Jan. 4, when it reached 7.805 per bushel. 

CBOT Wheat Daily Chart
CBOT Wheat Daily Chart

Charts by SKCharting.com, with data powered by Investing.com

The upshot for wheat follows weekly losses since Jan. 7 in a market that has slid to almost pre-Ukraine war pricing over the past year. The grain’s near one-month high coincides with news on Wednesday that U.S. President Joe Biden and German Chancellor Olaf Scholz will send contingents of tanks to Ukraine. 

While the effectiveness of the German Leopard 2 and U.S. M1 Abrams tanks have been disputed, the decision to send them represents a reversal of U.S. and German hesitation at providing Kyiv with offensive armored vehicles. It is also symbolic of efforts by Zelenskyy’s allies to help Ukraine recover territory seized by Russia. Some 321 tanks will be received by Ukraine, Kyiv’s ambassador to France, Vadym Omelchenko, said.

Aside from the tanks, the United States is separately preparing more than $2 billion worth of Ukrainian military aid that is expected to include longer-range rockets for the first time as well as other munitions and weapons, Reuters reported on Tuesday.

U.S. Wheat Associates, an export market development organization that supports the wheat industry, said in an outlook issued this week:

“Market sentiment has become increasingly bearish, and prices have significantly dipped in the buyer’s favor; however, many unknowns linger in the market. The underlying uncertainty of Putin’s war will continue to support the market.”

Jack Scoville, Chief Crop Analyst at the Price Futures Group in Chicago, concurred, saying:

“The US and Germany are about to supply tanks to Ukraine, allowing the war to get hotter while the wheat crop develops.” 

Adds Scoville: 

“Russia has a large wheat production, although the USDA (US Department of Agriculture) says it is not nearly as large as Russia says it is. The big Russian production goes against the difficulty of moving the grain from the Black Sea due to insurance requirements, But so far, the lack of insurance has not increased demand for US wheat as Russian wheat is still moving.

The demand for US wheat in international markets has been a disappointment all year and has been hindered by low prices and aggressive offers from Russia. Ukraine is also looking for new business for its crops, and Russia is aggressive in the world market as it looks for cash to fund the war.”

 CBOT wheat got to a record high of $13.62 right after the Ukraine invasion. Following a year of dramatic volatility, several factors have pressured global wheat prices back to levels seen before the invasion.

Prices have steadily crumbled since the summer of last year after Russia and Ukraine, with support from the United Nations and Turkey, agreed to the Black Sea grain corridor and created the JCC, or Joint Coordination Center, to facilitate exports for the region. The agreement allowed supplies trapped in Russia and Ukraine to re-enter the world market, and in response, wheat futures eased 37% from the spring’s highs. 

“In the months since the corridor was implemented, wheat futures have continued falling to pre-war levels,” U.S. Wheat Associates said. “The downward pressure of steady, low-priced Black Sea wheat exports remains the primary driver.” 

According to JCC data, since the corridor’s inception, 5.1 million tonnes of wheat have been shipped from Ukraine.  

The USDA’s January report on World Agricultural Supply and Demand Estimates has pegged Russian wheat production at 91 million tonnes, though some private sector forecasts are upwards of 104 million tonnes. With record production, Russian exports are expected to reach 43 million tonnes, 17% above the five-year average. 

A record crop from Australia has also helped ease some global supply concerns. The Australian wheat crop is rumored to reach nearly 42 million tonnes, though USDA estimates hover at 36.6 million tonnes. 

So, where are wheat prices headed in the near term? 

CBOT Wheat Weekly Chart
CBOT Wheat Weekly Chart

Technical charts are pointing to an extended rally that could begin at $8 and run up to $9.50, says Sunil Kumar Dixit, chief technical strategist at SKCharting.com. 

“Though wheat futures has been showing an up move for the second week back to back, its extent may be limited for now to the $8.00-$8.13-$8.26 range.

Only if prices gain strong acceptance above this resistance zone, a further up-leg will begin, targeting $9.50 with some momentum distribution between $8.50 and $8.80.” 

If wheat fails to establish itself above $8, prices are likely to drop to the recent low of $7.12 and extend its downside to the 200-week SMA, or Simple Moving Average, of $6.76, Dixit concludes.

Disclaimer: Barani Krishnan uses a range of views outside his own to bring diversity to his analysis of any market. For neutrality, he sometimes presents contrarian views and market variables. He does not hold positions in the commodities and securities he writes about.

Traders Send Wheat Prices Spiking as Allied Tanks, Aid to Roll Into Ukraine
 

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Traders Send Wheat Prices Spiking as Allied Tanks, Aid to Roll Into Ukraine

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Comments (3)
Gold Member
getoverit Feb 01, 2023 1:53PM ET
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Like I said before those 14 Leopard will not change anything. Russian army will chew them up. Not sure how many ukranians still left in Ukraine but they are having big trouble finding anyone who is willing to fight. Full disclosure, I am Ukranian living in Canada for 20 years already and I don't want to fight for current foreign ukranian government.
Barani Krishnan
Barani Krishnan Feb 01, 2023 1:53PM ET
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And like the context I've added to the story very clearly points out, there are bigger things at play here: While the effectiveness of the German Leopard 2 and U.S. M1 Abrams tanks have been disputed, the decision to send them represents a reversal of U.S. and German hesitation at providing Kyiv with offensive armored vehicles. It is also symbolic of efforts by Zelenskyy’s allies to help Ukraine recover territory seized by Russia. Some 321 tanks will be received by Ukraine, Kyiv’s ambassador to France, Vadym Omelchenko, said. Aside from the tanks, the United States is separately preparing more than $2 billion worth of Ukrainian military aid that is expected to include longer-range rockets for the first time as well as other munitions and weapons, Reuters reported on Tuesday.
Jeffrey Vose
Jeffrey Vose Feb 01, 2023 6:44AM ET
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This administration is such a joke.
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Barani Krishnan
Barani Krishnan Feb 01, 2023 6:44AM ET
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SunilKumar Dixit  Looking at current moves, I think this part of your outlook will prevail: If wheat fails to establish itself above $8, prices are likely to drop to the recent low of $7.12 and extend its downside to the 200-week SMA, or Simple Moving Average, of $6.76.
Gold Member
getoverit Feb 01, 2023 6:44AM ET
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This admin is not a joke, it's criminal and dangerous.
Barani Krishnan
Barani Krishnan Feb 01, 2023 6:44AM ET
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Gold Member  Actually, the former "administrator" was dangerous by all accounts and could be criminally indicted.
Enrico Sala
Enrico Sala Feb 01, 2023 6:44AM ET
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Brad Albright  all "noble causes" you list have been pending for a very very long time, well before this war. There is no point in clinging to this reasoning, it only serves to confuse things
Barani Krishnan
Barani Krishnan Feb 01, 2023 6:44AM ET
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Enrico Sala  What is pending? The Covid emergency is done. Crucial manufacturing and industries are being restored with chip plants under construction and almost 700,000 manufacturing jobs added across the country and in key supply-chain industries. Crucial international alliances and commitments to treaties blown away by Trump are being re-honored, especially the Paris Accord. The economy contracted 3.5% in 2020 under Covid (no one’s blaming Trump given that it was a once-in-a-century pandemic) but we had 5.9% in 2021, 2.9% in 2022 and could reach at least 2% this year. For post-9/11 combat veterans, the PACT Act extends the period of time they have to enroll in VA health care from five to ten years post-discharge. There is legislation to reauthorize surface transportation programs for five years and invest $110 billion in additional funding to repair roads and bridges. Unemployment is at 50-year lows and monthly average earnings of Americans has grown without stop since March 2021. You want more?
Gonzalo Ribeiro
Gonzalo Ribeiro Feb 01, 2023 6:42AM ET
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Commodity super cycle incoming
 
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