What Next For The Best-Performing Agricultural Commodity This Year?

There are a number of political commodities in the market. Crude oil is political because of the ‘oligopoly’nature of the biggest producers. By this, OPEC itself is responsible for more than 50% of all crude oil produced in the world. Soybeans and corn have also become huge political because the United States is the biggest producer and China is the biggest consumer. What many traders don’t realize is that wheat is another big political commodity. The reason for this is that wheat is used to prepare bread, which is one of the most common foods in the world. The biggest producers of wheat are also important with China, Russia, and India leading the way.

This year, the price of wheat has risen the most among the agricultural commodities. YTD, wheat has gained by more than 24%. This is a bigger gain than commodities like cotton and corn that have gained by 10% and 2% respectively. Soybeans has declined by almost 5% this year.

The reason for the upward trend in the price of wheat was that the demand for wheat-made products has continued to rise. At the same time, the supply has been relatively constrained. Indeed, the last world Agricultural Supply and Demand Estimates (WASDE) said that:

The outlook for 2018/19 U.S. wheat this month is for unchanged supplies, lower exports, and higher ending stocks. Wheat exports are lowered 25 million bushels to 1.0 billion with all of the reduction in Hard Red Winter (HRW) on historically low exports for this class in the first half of the 2018/19 marketing year (MY). The reduction in HRW is partially offset by higher exports of Hard Red Spring and Soft Red Winter. Projected 2018/19 ending stocks are raised 25 million bushels to 974 million, which are still down 11 percent from last year.

While the increase in price could continue in the coming year, the reality is that wheat is a cyclical commodity. This means that as the price rises, more farmers tend to move to the commodity. This is more so because wheat crop takes about three months to grow. As more farmers move to the crop, the supply tends to increase, which leads to a lower price.

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