Apart from a few small spikes, it has been a rather uneventful year for wheat markets thus far. For all the talk around tariffs, conflicts and weather issues, volatility has been markedly absent. Here we look at futures prices and what it might take to break the drift.
As we enter the last month of the northern summer, harvest continues to roll on in the northern hemisphere. The harvest period has been largely uneventful. Sometimes we see mid-harvest deluges, which can spike prices, but this year they’ve been absent.
Figure 1 shows the Chicago Soft Red Wheat (SRW) market trading in a narrow range of $293/t to $334/t in our terms since January. It is easy to contrast this lack of volatility with last year, which had a range a bit over $100/t, and 2022, which had a $300 range.
Range trading and a lack of volatility is the symptoms of adequate supplies and steady demand. We have been saying for some time that wheat stocks are being literally eaten into, but the market seems comfortable with a ‘just in time’ system.
For growers, we can see that at least the bottom of the wheat market appears to be set at levels around $100/t higher than a decade ago. We know that rising costs mean that prices simply can’t go too much lower, as the profitability envelope is likely being pushed already here, in the US, and in Canada.
Futures markets are the best indication of what market participants think wheat prices will do going forward. However, in the absence of volatility or any real direction, futures will usually be priced at the cost of carry.
Figure 2 shows the SRW futures curve. The premium priced into the market going forward is basically equal to the cost of buying wheat today, storing it, and paying for finance for the period in question.
With prices just above $300/t for the coming December, and close to $350/t for December 2026, prices are hardly inspiring.
For wheat prices to lift from here, it will require a dire spring in the southern hemisphere, something we don’t want to see, or issues with corn in the northern hemisphere. Otherwise, we might have to wait until US winter wheat is going in the ground later in spring. Sowing intentions will give a good idea of what US producers think of prices.
What does it mean?
I once had a conversation with a wheat producer when prices were close to the cost of production, as to whether they sow wheat, or simply buy futures (or physical) as they needed a price rise to make the crop profitable. We might be nearing this point again if prices don’t rally before next autumn.
Key Points
- Wheat prices have continued to drift sideways as northern hemisphere supplies are ample.
- The focus on production issues will shift to the southern hemisphere.
- If prices are nearing the cost of production, supply should start to tighten next year.
Click on figure to expand
Click on figure to expand
Data sources: CME, Refinitiv, Mecardo
