What Drives Wheat Prices Up or Down

Wheat, often referred to as the "staff of life," is the quintessential food grain and the most widely grown and traded crop globally. And while other crops have been subject to more advanced processing steps to create alternative uses, wheat today is largely consumed today as it has been for centuries – ground into flour for human consumption or fed as whole grain to animals. Different varieties cater to specific applications, with the main distinctions being the growing season (winter or spring wheat) and the quality of the wheat kernel (soft versus hard). Understanding these factors is crucial, but the price of wheat is driven by a complex interplay of supply, demand, and other market forces.

1) Key Trading Parameters:

Exchange Traded: Chicago Mercantile Exchange (CME)

Price Quote: US dollars per bushel

Unit of Trade: 60-pound bushel

Futures Contact size: 5000 bushels

Contract Months: March, May, Jul, Sep, Dec

Settlement: Physical Delivery

2) Market Drivers

  1. Supply and Demand Dynamics: Wheat production is the most diverse among the major agricultural commodities. China, India, the European Union, and Eastern Europe (Russia/Ukraine) each contribute around 15-20% to global production, followed by North America (US/Canada around 10%) and Australia (around 5%). Wheat is widely consumed globally with North Africa, Southeast Asia and the Mideast being reliant on imports to meet demand. A broad production base with the potential for winter and spring varieties in many geographies creates a complex supply matrix for wheat globally.
  2. Quality Considerations: While all wheat can be ground into flour, specific varieties are desirable for different applications. Wheat with higher protein content produces flour with higher gluten content. This higher gluten content is valued in food applications which require more structure – leavened versus flat bread, or pastas versus flat noodles. Higher protein wheats are deemed “hard” while lower protein wheats are “soft”. While protein content can vary within a specific crop, the larger driver is gowing condition and season, such that the whole crop will be deemed ‘soft’ or ‘hard’. Specific futures contracts are dedicated to different wheat types, although delivery of alternate varieties is allowed at established differentials.
  3. Directional and Relative-value Trading: With a complex trade matrix, multiple crops within a calendar year and meaningful quality considerations, physical and futures trading in wheat features significant opportunities for relative value and arbitrage trades in addition to directional price movements.
  4. Government Intervention: As a dietary staple, wheat prices are highly impactful on consumers, especially in developing economies where food spending represents a higher share of disposable income. This dynamic has led governments in both importing and exporting nations to intervene in markets when supply or demand pressures emerge. Examples of government actions include import and export tariffs, domestic price controls and accelerated procurement and stockpiling programs. The anticipation and implementation of these interventions can create significant reactions in trading markets.

3) Latest News and Analysis on Wheat

Wheat Prices Rise on Strong Demand, but Monthly Losses Remain

Chicago wheat prices are on track for their first weekly gain in a month, driven by increasing demand, according to a report by Reuters. However, the grain is still poised to record its largest monthly decline since June 2022, as the northern hemisphere harvest and improved planting conditions in Argentina

Global Grains Production Booms, but Tight Stocks and Trade Uncertainties Remain

Global grains production is expected to reach a record high in the 2023/24 marketing year, driven primarily by a strong rebound in wheat production, according to the latest report from the International Grains Council (IGC). However, despite the increase in supply, global stocks are expected to remain tight, and

EU Crop Yields Face Uncertain Future After Difficult Start to Summer

Hopes for a bumper harvest in Europe are fading as a challenging start to summer threatens to drag down crop yields, according to the latest report from the European Commission's Joint Research Centre (JRC). While overall forecasts remain close to the five-year average, a combination of waterlogged fields,

US Wheat Exports Set to Surge Amidst Global Supply Concerns

The US wheat market is poised for a strong year, with exports expected to rise as global production faces challenges and competition shifts, according to the latest report from the USDA. The USDA projects US wheat exports to reach 800 million bushels in the 2024/25 marketing year, a 25-million-bushel

Argentine Wheat Harvest: Prices Retreat Amidst Global Volatility

A report published today by the Rosario Board of Trade reveals a mixed picture for the global wheat market, with domestic Argentine prices retreating despite a strong start to the planting season and a surge in trade activity. Argentina: Planting Gains Momentum, Prices Retreat Wheat planting in Argentina is progressing

US Grain Exports Face Downward Revisions as Prices and Competition Shift

The USDA revising its forecast for corn and wheat exports downward, reflecting the broader landscape of shifting prices and global competition. In a report published on Wednesday, the agency forecasts US grain and feed exports to reach $37.6 billion in fiscal year (FY) 2024, a $600 million decline from

Drought Impacts Wheat Yields in North Africa, While Egypt Rebounds with Strong Harvest

Drought conditions have severely impacted wheat yields in Morocco and Algeria, according to the latest report from the European Commission's Monitoring Agricultural Resources and the Environment (MARS) Bulletin. Meanwhile, Egypt is expected to have a near-average wheat harvest, bolstered by irrigation and favorable weather conditions. Morocco: Negative Outlook

European Crop Outlook Mixed as Weather Conditions Bring Contrasts

The European crop outlook remains positive overall, with yield forecasts at the EU level still above the five-year average, according to the latest report from the European Commission's Monitoring Agricultural Resources and the Environment (MARS) Bulletin. However, recent weather patterns have brought both favorable and challenging conditions, impacting

Russia Tightens Grip on Grain Industry as Wheat Prices Surge, Bloomberg Reports

Russia is strengthening its control over its vital grain sector, potentially giving it greater sway over exports just as global supply concerns escalate, according to a report by Bloomberg published on Sunday. This consolidation of the grain industry coincides with a spike in wheat prices, driven by poor weather conditions

Global Grain Production Forecast Revised Downward as Stocks Tighten, Trade Rises

The International Grains Council (IGC) has revised its forecast for global grain production in the 2023/24 marketing year downward, citing smaller-than-expected sorghum and barley harvests. While the supply outlook is somewhat buffered by increased carry-in stocks, the IGC also trimmed its forecast for global ending stocks, reflecting tighter supplies.