MettaInsights: Wheat Commodity Market

Nov 19, 2021

What is Wheat?

The wheat plant has long slender leaves and stems that are hollow in most varieties. The inflorescences are composed of varying numbers of minute flowers, ranging from 20 to 100. The flowers are borne in groups of two to six in structures known as spikelets, which later serve to house the subsequent two or three grains produced by the flowers. Though grown under a wide range of climates and soils, wheat is best adapted to temperate regions with rainfall between 30 and 90 cm (12 and 36 inches). (1)

Wheat is one of the oldest and most important of the cereal crops.

What is Wheat Used For?

Of the thousands of varieties known, the most important are common wheat (Triticum aestivum), used to make bread; durum wheat (T. durum), used in making pasta (alimentary pastes) such as spaghetti and macaroni; and club wheat (T. compactum), a softer type, used for cake, crackers, cookies, pastries, and flours. Additionally, some wheat is used by industry for the production of starch, paste, malt, dextrose, gluten, alcohol, and other products. (1)

Price Performance in 2021

The price of wheat was about $625/bushel at the start of the year. It reached a year high of $826/bushel and is currently almost at that level – $822/bushel.

Looking at longer time frames, the significant price increase in this essential commodity becomes even more apparent. The cost of wheat has more than doubled since 2017.

A further increase of a little over $100/bushel will take wheat to a 10-year all-time-high.

Forecast

Agricultural commodities experts do not expect a lull in wheat’s price hike. There are several factors that support their position.

Weather has always been a major consideration when it comes to agricultural commodities. Wheat – grown on more land than any other crop – was hit by droughts, frost and heavy rain in key exporters. (3)

“Far too abundant rains in Europe and an unprecedented drought in Canada are leading to a shortage of durum wheat and historic soaring world prices” (4)

Market psychology is also an important factor. For governments, the popular crypto term “fear of missing out” or FOMO is translated into “fear of not having enough”. Wheat is an essential part of the diet of the world population, especially its poorest segment, and governments simply cannot afford to not have enough. According to Bloomberg, the increasing wheat price could adversely affect global hunger that’s already at a multiyear high. (3) When world leaders see the price increasing they tend to buy more, leading to further price increases.

Dwindling stockpiles make governments even more anxious about ensuring they have enough of the essential crop. Supply-chain disruptions caused by the Covid-19 pandemic are preventing the top wheat exporters from delivering wheat to needy nations. That, however, could very well be an effective excuse to keep more of the crop within national borders and ensure that nationals will not go hungry.

Finally, some countries instated export tariffs to limit the outflow of wheat. One of them is Russia which is becoming more protectionist when it comes to wheat. (3) That causes other exporters to improve their market position by supplying more, but the delays that these new arrangements could cause lead to inefficiencies. New suppliers usually become overstretched and fail to fully cover volumes that countries like Russia, for example, where able to support.

All these factors contribute to an uncertain future for the price of wheat. Production scenarios in Canada and other major exporting countries are what experts are currently watching.

Looking at longer time frames and taking into account the extreme weather events that are becoming more pronounced each year and increasing world population, we shouldn’t expect wheat to become any cheaper. 

By 2026, the price of a bushel of the crop is expected to reach ~$2000.

The Mettаlex DEX

We are considering listing a wheat market on the Mettalex decentralized exchange in the next few months.

Let us know if you would like to short or long wheat with stablecoins in this Twitter poll.

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References:

  1. Encyclopedia Britannica Online. Wheat. Accessed on 19.11.2021. URL. 
  2. Trading Economics Website. Wheat. Accessed on: 19.11.2021. URL. 
  3. Durisin, Megan. Soaring Wheat Prices Are Raising Bread Costs. Bloomberg Markets. Published on: November 2, 2021, 2:41 PM GMT+2. Updated on: November 2, 2021, 7:52 PM GMT+2. Accessed on: 19.11.2021. URL.
  4. Sampad, Nandy. Feature: Rising wheat prices make pasta and bread expensive. S&P Global Platts Online. Published: 08 Sep 2021, 11:05 UTC. Accessed on: 19.11.2021. URL.

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Check out the rest of the MettaInsights research articles to educate yourself on commodity markets such as Nickel, Palladium, Zinc, Coal, European Union Emission Allowances (EUAs), Uranium, Brent Crude Oil, Natural Gas, Lithium Carbonate, Iron Ore.

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