Wheat futures fell after speculations that global production will climb to a record re-emerged. This is not really new news, as the US Department of Agriculture previously said in a May 10 report that global wheat production would hit 701.1 million metric tons in year 2013-2014 which starts in June. Similarly, Russia has also indicated that it will expand output to 56 million metric tons, close to a 50% increase from this year.
Prices hit a high of above $9.20 per bushel last July due to weather concerns affecting crops. In light of this, the increase in wheat production should only go so far as to bring inventories closer to pre-drought levels, rather than causing a huge glut of supply that will drive prices lower.
Technicals agree with this outlook, with price currently facing a multi-year rising trendline which can be expected to provide some support against downside movements. Also, the bottom of current consolidation range is the confluence with the ceiling of early Jan 2012 levels, which affirms and add strength to current support Stochastic indicator also suggest that price may be able to rebound higher from here with readings still aiming higher.
Fundamentally, looking at Corn and Soybean which have been rallying due to weather woes, it is strange to see Wheat going against the grain. Producers pledging to produce more is a good thing, but that does not negate the same potential weather risks that corn and soybeans are facing. It is likely that Wheat will take a hit from weather in 2013-2014 as well, which will definitely impact production levels, with ‘how much’ being the only question.