This article was sent to Trader PhD subscribers on Jan. 22, 2025.
Wheat futures struggled to receive follow-through buying this week after Tuesday’s breakout.
March Chicago wheat traded as high as $5.66 ¾ on Wednesday before posting a reversal day on the chart. Prices fell short of the December high of $5.69 ¼, likely serving as resistance.
Extreme cold earlier this week likely supported futures due to large areas of unprotected wheat in dormancy. Cold snaps could create enough damage to add risk premium to the market, though the market may wait for the crop to exit dormancy before getting too excited about yield damage.
Part of wheat’s continued struggle is the large percentage of U.S. wheat held on farms this season. The USDA’s Quarterly Grain Stocks report released a couple of weeks ago showed 467 million bushels of wheat were on farms as of Dec. 1, up 16.5 percent year-over-year.
That was also nearly 30 percent of total U.S. wheat inventories and the largest percent since the 2014/15 season.
A lack of producers selling has driven commercial traders near a record net-long position. Naturally, large speculators take the opposite side of the trade as commercials, holding them at a large net-short position.
Wheat futures have remained near contract lows since speculators tend to follow the trend, which has been down for the past year.
Corn was in the same predicament in 2024. Producers held the largest percentage of U.S. corn stocks since 2005. It wasn’t until prices fell to multi-year lows that farmers threw in the towel and let go of their bushels.
As merchandisers began to move grain, demand picked up. With the August 2024 low in place, the corn market was able to work higher.
Wheat could be a similar story. The market may not be able to have a substantial rally so long as producers hold on to large wheat inventories, even if it means selling at a loss.
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