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Wheat prices uncertain following weather prediction in Russia 

May 30, 2024

Key Points: 

  • Chicago wheat futures fall to $6.84 due to potential rain in southern Russia and Ukraine. 
  • A stronger US dollar pressures farm goods, making them more expensive for importers. 

Chicago wheat futures (Symbol: Wheat-C) declined to $6.84 after a surge to $7.20. This price level is the highest since July, driven by reduced harvest estimates in Russia.

Russian analysts recently cut their harvest forecasts by around 10 million metric tons due to adverse weather conditions, including dryness and spring frosts. 

The strengthening of the US dollar has added downward pressure on wheat prices, driving the commodity prices higher for international buyers in global markets. This currency dynamic has added the recent correction in wheat prices.

As the dollar appreciates, importers with other currencies face higher costs, potentially leading to a decrease in demand for US wheat and further influencing market sentiment. 

SEE: The image above shows the movement in wheat prices, as observed on the VT Markets app

Wheat prices change according to the weather 

The market is now assessing the potential impact of forecasted rain in southern Russia and Ukraine. While the rain could increase the harvest estimates, high temperatures may reduce its effectiveness in benefiting the crops.  

Further, uncertainty about the Black Sea supply is likely to prevent significant near-term declines in wheat prices. A dip is expected from July as northern hemisphere harvests increase grain supply. 

India may start importing after six years 

Adding to the market dynamics, there are expectations that India may begin wheat imports after a six-year hiatus to replenish reserves and control prices. This potential move could support global wheat prices. 

Commodity funds were net sellers of CBOT wheat on Wednesday, having recently reduced their short positions in all three contracts. This trend suggests a shift in market sentiment, influenced by planting progress and weather forecasts. 

Wheat prices may remain volatile as traders monitor weather developments in Russia and Ukraine. If rain forecasts materialise, prices could stabilise or decline slightly. Conversely, if the rain fails to benefit crops, prices might rebound.

Further, as northern hemisphere harvests begin in July, increased grain supply could lead to a more pronounced dip in wheat prices. Market participants should watch for updates on crop forecasts from the International Grains Council and other agricultural bodies. 

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