Chicago-traded wheat and corn futures surged on Wednesday, as the termination of the Ukraine grain export deal and an unfavorable US weather outlook weighed on sentiment.
The most-active December corn futures jumped 9.3%, marking their largest two-day gain since March 1, 2022. The surge was driven by concerns about the potential for further supply disruptions from Ukraine, as well as hotter and drier weather forecasts for the US Corn Belt.
The CBOT wheat futures also saw a significant increase, rising 8.5% on Wednesday. This was the largest single-day percentage gain for wheat since Russia’s invasion of Ukraine.
The sharp rise in grain prices came as a surprise too many market participants, as both wheat and corn had been trading near their lowest levels in months in the days leading up to Wednesday’s session. However, the combination of the Ukraine export deal’s collapse and the unfavorable US weather outlook proved to be too much for prices to handle.
The Ukraine grain export deal was seen as a major step forward in easing global food shortages, as it would have allowed for the export of millions of tons of wheat from Ukraine’s Black Sea ports. However, the deal was ultimately scrapped after Russia refused to guarantee the safety of merchant ships in the region.
The unfavorable US weather outlook is also a major concern for grain markets. The US Department of Agriculture (USDA) has forecast below-average rainfall for much of the Corn Belt in the coming weeks, which could lead to crop damage and further supply disruptions.
The sharp rise in grain prices on Wednesday is a reminder of the volatility that can be seen in these markets. As the war in Ukraine continues and the global economic outlook remains uncertain, it is likely that grain prices will continue to be volatile in the coming months.
Implications for Investors.
The sharp rise in grain prices on Wednesday is likely to have a number of implications for traders and investors. For those who are long grains, the recent gains could provide an opportunity to take profits. However, it is important to remember that grain prices are still volatile, and there is a risk that they could fall back in the near future.
For those who are short grains, the recent gains could put them under pressure. If prices continue to rise, they may be forced to cover their shorts at a loss.
Let’s remember that the seasonality of wheat, and corn, in the months of June, July, and August is as follows:
- Wheat prices tend to be lowest in June, July, and August, as the harvest season begins in the Northern Hemisphere. Prices typically start to rise in September, as the new crop becomes available. So it is possible that we can reach new highs for the current year in the next few months and reach one of the targets shown in the chart in the next few weeks (820/830 area by half of August).
- Corn prices tend to be relatively stable in June, July, and August. However, prices can be volatile if there are concerns about weather conditions or demand. The situation in corn is a little different as shown in the chart. The market has been in a range zone since last year with support around 460/470 and resistance in areas 610/630. Traders could look at these areas to implement some options strategy or to sell resistance and buy support with the futures.
Overall, the recent volatility in grain markets is a reminder of the risks involved in trading these commodities. Investors should carefully consider their risk appetite before entering into any positions.