March 16, 2023 (MLN): Wheat prices are likely to surge around 20% from current levels due to expectations of an unusually hot and dry summer, combined with the impact of the war in Ukraine, according to experts.
Shawn Hackett, president of Hackett Financial Advisors, predicted that drought will hurt spring wheat, not only in the US but also in other places, which could lift prices.
Risk-tolerant traders should consider buying September-dated futures contracts for hard red spring wheat on the Minneapolis Grain Exchange or buying the Teucrium Wheat exchange-traded fund.
Hackett sees the wheat market slumping into April and then forming a bottom from which prices will bounce into a significant rally.
The current "grand solar minimum," which means the count of spots on the sun's surface dropped to historically low levels, and the Tonga undersea volcano eruption in January 2022, which catapulted 45 million metric tons of water vapor into the stratosphere, are two major factors that will probably produce a scorching summer, according to a recent report from Hackett.
Russia and Ukraine, respectively the top wheat exporter and the sixth largest, are unlikely to contribute as much grain, as usual, this year due to a lack of farmworkers who are now needed to fight the Russian army- a shortage likely to cut the crop volume by 25%, experts say.
Adding to the problem are delays in shipping the grain through the Back Sea and Bosporus, the result of Russia's demands to check the cargo. And Russia has farm problems of its own, including a lack of labor due to mass military conscription and a shortage of spare parts for agricultural vehicles because of the sanctions on the Kremlin.
Relatively low wheat inventory will exacerbate the effects of the weather and the war. At the start of the 2022-23 season, global wheat inventories totaled 271 million metric tons, which represented just 34% of projected consumption, according to data from the US Department of Agriculture.
That's down from 39% for the 2018-19 season. Such low stockpile levels will probably make price movements more volatile.
Not everyone is worried about this summer's weather. Joe D'Aleo, a meteorologist at forecasting company Weatherbell, predicts that "the weather will be better this year than the past few," and "Kansas is a big concern, but all of the forecasts say it should be wet in Kansas this summer."
In turn, that should mean a larger crop than seen recently. However, given the overall situation in the wheat market, the suggested trade could well work out.
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Posted on: 2023-03-16T09:48:40+05:00