Wheat, Corn, Soybeans and Cocoa. What The Near-Term Future Holds For Those Commodities.
Lately, we have started seeing more and more headlines about various commodities and how those are affected by everything that is happening in the world right now. From geopolitics to climate change, everything seems to be weighing in heavily on the prices of major commodities. Let’s examine some of them and try to understand various scenarios of the near-term outlook.
Since the beginning of the war in Ukraine, wheat has become one of the hot topics, which gets discussed in the news, at least once a week. Before the conflict began, this commodity was remembered mostly when there was drought or flooding of regions this grain culture can be found in. Basically, the supply of wheat would mostly be affected by disasters caused by nature. However, from the end of February 2022, the situation has changed, and the world experienced the threat to the global supply of wheat because of the human element.
But looking at the chart of wheat, we can see that after peaking in the beginning of March 2022, the price has been on a decline, with occasional temporary sharp spikes higher. The short fluctuations were coming mostly from the geopolitical instability and tensions between the two fighting nations, which are one of the biggest suppliers of this grain in the world. But every time the price changed its course north, it then quickly found a ceiling and drifted back down. Now this can be explained by the fact that there is no real shortage in the supply of wheat, as no natural disaster had occurred. Going further, we could see a continuation of threats from the two fighting countries that they will slow down the supply of wheat. However, if the harvest has already been collected, they cannot really afford to keep their wheat lying around in warehouses. They must sell it as it is one of their main sources of national income, which is currently directed towards the war needs.
From the technical perspective, we can see that the price returned to its 2021 levels, ranging roughly between the 570- and 800-dollar marks from the beginning of this year. We can see that the price has now drifted below the 50-, 100- and 200-day EMAs on our daily chart and moved closer to the current lowest point of this year, at around 570.
To shift our attention to some lower areas, a break of the current lowest point of 2023, at around 573, would be needed. This way, more sellers could join in, possibly aiming for the lowest point of 2020, at 471, or the lowest point of 2019, at around 419.
A break above the 800 mark would confirm a new high for this year, potentially opening the door for further advances higher. That’s when we will aim for the 950 zone, marked by the highest point of October 2022, or for the 1027 level. That level is the low of June 1st of the same year.
At the end of June, corn futures took a major hit, falling from around 670 dollars to 474 dollars, losing almost 30% in a matter of two weeks. This was due to the forecasts, which started coming through, of better-than-expected weather in the US. After that we saw a 50% price recovery due to Russia coming out of the grain agreement. However, at the end of July the price of corn started moving back down, as traders weighed in good US weather forecasts, that may help increase supply. If this stays as it is, then we might see lower price areas for Corn futures.
Recently, corn price broke below its previous lowest price of 2023, at 474, this way indicating a bearish near-term outlook. Such a move has confirmed a forthcoming lower low, potentially spooking the bulls from the field temporarily. Corn could then drift to the highest point of November 2020, at around 439. That said, if the buyers are still nowhere to be found, the price may slide further, possibly targeting the 393 hurdle, which is the lowest point of November 2020.
For us to start shifting our attention to some higher areas, at least in the near term, we would need to see a move back above 564 barrier, which is marked near the highest point of July. A break of that area may attract a few more buyers, potentially dragging the price towards the psychological 600 obstacle, or even to the medium-term downside resistance line taken from the high of October 7th, 2022.
As we all know, soybeans (or soya beans) are quite heavily used in the Chinese and Japanese cultures, as one of the main ingredients in their cuisine. However, the main producers of soybeans are located “only” an ocean away from the main consumers. The top 5 growers of soya beans are Brazil, United States, Paraguay, Argentina and Canada.
Since its peak in June 2022, the price of this commodity has been declining. At the end of July this year the commodity experienced a sharp decline, which, as we understand, is not in support of any upside any time soon. The recent price drop was associated with improvements in weather conditions in the US. The forecast is for milder and more favorable conditions for the commodity. This means that the supply should not be damaged, as initially expected, but instead, there could be more of it than needed. In addition to this, a current slowdown in the Chinese economy might also have its negative affect on the overall demand for soya beans. The most recent Chinese imports number showed also a further decline, which could also support the case for lower demand.
When we take a look at soybeans price structure on our daily chart, we will see that the commodity reversed its course south around mid-June 2022. Since then, the buyers tried to bring the price higher, but they could not get anywhere as close as the peak, which is around 1783 that was reached in June 2022. After the recent strong fall, the price is now close to the current lowest point of this year, near the 1270 zone.
Although the near-term outlook seems to be slightly on the bearish side, we would prefer to see a break of the previously mentioned 1270 zone first before examining the downside. This way, a forthcoming lower low would be confirmed, potentially clearing the way to some lower areas. That’s when we will target the lowest point of November 2021, at 1181, a break of which could open the door towards the 1142 level, marked by the lowest point of December 2020.
To aim again for higher areas, we would prefer to wait for a push somewhere above the 1425 hurdle, marked by the inside swing low of July 7th. If we see that jump, more buyers might join in, potentially ramming the price towards the 1555 zone, or even the 1580 level, marked near the current highest point of this year.
Cocoa is a commodity that sparks positivity in our minds, when we think about it. This is because one of the tastiest types of food, which is produced from it, is chocolate. However, probably, the only time when that positivity is not there is when we hear about issues, that could potentially affecting the cocoa crops. And this is what we have been hearing all the way up until around the end of July, when the price reversed its course. Once again, the correction came after various weather reports started pointing towards milder conditions. This means that the recent fear of lower supply might not be as big as initially expected. In addition to that, recently, the Cocoa Association of Asia and the European Cocoa Association have reported that in Q2 cocoa processing fell. Some large chocolate makers are also indicating slightly lower chocolate sales.
Given that cocoa crops are very fragile, too much rain, or too much dryness can quickly reverse the near-term outlook to a doom and gloom one. Also, the cocoa crops can easily pick up diseases, which may damage the supply of it. For now, the market goes from the perspective that good weather forecasts can help bring the price down a bit. Basically, we adjust as we go.
Everything what was mentioned above could come in line with our short-term technical picture. Looking at the daily chart, we can see that from around the end of September 2022 Cocoa has been on a strong move higher, while trading above a medium-term upside line drawn from the low of September 26th, 2022. However, the recent sharp decline has increased the chances for a larger correction lower before another possible leg of buying.
A drop below the 3260 hurdle, which is marked near the low June 28th and is near the lowest point of July, could spark the selling interest in the eyes of more traders. Cocoa might then travel all the way to the previously mentioned medium-term upside line, which may provide initial support. If that line stays intact, the buyers might take advantage of the lower price and push it back up again towards the levels we have seen in July.
Alternatively, a break of the medium-term trendline could signal further declines, keeping the bulls from entering the field for now. Cocoa price may then drift to the lowest point of May, at 2858, a break of which could set the stage for a move to the 2699 level. That level marks the highest point of January.