Ag Analysis Report 12/1/20 - Can The Strong Move In Wheat Prices Continue???
One year ago, we were talking about the U.S. and China agreeing on a phase one deal. The US committed to not raising tariffs on $250 billion worth of Chinese goods to 30% and China committed to increasing agricultural purchases and addressing financial services and technology theft.
Phase 1 would provide much needed relief to the American farmers because China would buy $40 billion to $50 billion worth of American agricultural products annually.
Treasury Secretary Steven Mnuchin said the agricultural purchases could scale up to $40 billion-$50 billion annually as part of a partial trade deal, potentially more than doubling the $24 billion in agricultural and related products China purchased from the United States in 2017.
At the time, many thought soybeans farmers were going to be the biggest winners, but it was thought that China was going to work to
fill its wheat-buying quota to the tune of an additional 5 to 6 million tons of world wheat annually.
Fast forward to today and a different dynamic is at play.
Wheat prices fell after Australia forecast its second-highest crop ever and Russia proposed curtailing grain exports next year. Wheat futures fell as much as 3.3% to $5.85 3/4 a bushel in Chicago trading, the lowest for the contract in almost eight weeks.
Wheat had been on track for its fifth straight monthly gain on Friday, its longest streak in 13 years, before Monday’s retreat. Russia, the world’s biggest wheat shipper, aims to ease its plan for curbing grain exports in 2021.
“Essentially there is going to be no limit on Russia wheat exports on a practical basis,” Rich Nelson, chief strategist at Allendale Inc., said by phone.
Now what is interesting about the price action on Wheat is that price has breached the monthly resistance/support band, but didn't close above the band.
However, on the weekly chart, price has breached the monthly resistance/support band after several failed attempts.
So my own personal bias is that with the continued weakness in the US dollar as the US fed print more fiat, despite some potential short term downside in wheat prices, I think wheat prices will continue to move higher medium to longer term (over the next 12-18 months).
This post is my personal opinion. I’m not a financial advisor, this isn't financial advise. Do your own research before making investment decisions.
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