The wheat represents one of the most traded grains worldwide. A new spring is coming, and therefore, the wheat season is about to end.
It turns out greedy trading opportunities might occur.
The US of America is always a top producer of wheat. In 2018, the USA produced about 47 millions of tons, ranked as the fourth country in the wheat production.
In the last 5 years, the US wheat supply has been roughly 10% of the total world production, as it is shown in the figure 1.
Figure 1. Percentage of US wheat production (USDA).
The US production is composed of six types of wheat:
The Chicago SRW (soft red winter) Wheat accounts for 15 to 20 percent of total production, is grown primarily in States along the Mississippi River and in the eastern States (see figure 2). SRW flour is used
for cakes, cookies, crackers, and other wheat products made from low protein flour.
Figure 2. Map of wheat location (kswheat).
The figure 3 highlights a drastic decrease after the season 2013/14 the SRW wheat production, in addition, the (USDA) projections show an increasing spread between planted and harvested crops.
Figure 3. Soft Red Winter wheat. The graph exhibits the percentage of SRW wheat production (blue), planted (orange) and produced (red).
Furthermore, the figure 4 shows that while the total US supply is decreasing (blue curve) in the last years, the exports are growing (green curve). Therefore, the last two figures might suggest that in the last years the wheat price is increasing.
Figure 4. US wheat supply and demand. The graph shows the time series of supply and demand (in millions of bushel). They are composed by production (blue), total supply (red), internal use (yellow) and export (green).
This section deals with the wheat futures. In fact, as it is highlighted in figure 3 and 4, we would expect a wheat price higher during the last years. It turns out the last delivered contract (WH2019) was effectively above the previous four years.
Figure 5. Wheat March 2019 futures contract (Tradology)
We now take into account the WK (Wheat May) contracts, it turns out (see figure 6) the current contract (the year 2019) was above the previous year until the end of February. Therefore, according to our earlier analysis, we expect the current contract grows after about two weeks of decreasing trend.
Figure 6. Wheat May 2019 futures contract (Tradology)
This forecast is supported by the wheat contango histogram in figure 7. Essentially, the contango histogram gives us an indication of the contango in the last 15 years. Since in average (and median), the wheat contract should be in backwardation while it is actually in contango. In fact, there is a new crop in July and therefore the supply should increase, which implies lower prices.
Figure 7. Wheat May 2019 futures contract (Tradology)
This section proposes a possible trading strategy on a calendar spread. This is the calendar spread WU2019 - WZ2019, and it turns out that it has been a profitable spread 13 times in the last 15 years.
Figure 8. WU2019 - WZ2019 graph (Tradology).
In this report, we have given an analysis of the supply and demand of the wheat. In addition, we have proposed a possible forecast relying on the statistics of the past years and in agreement with US supply and demand. Finally, we have proposed a calendar spread based on the statistical tools present on trends