Quarterly Outlook
Equity outlook: The high cost of global fragmentation for US portfolios
Charu Chanana
Chief Investment Strategist
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Wheat rises on short covering and weather woes, but fundamentals still lacking
Ole Hansen
Head of Commodity Strategy
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Key points:
Wheat futures in Chicago surged to a two-month high on Wednesday, driven by adverse weather across key growing regions in the U.S., Europe, and Russia, alongside signs of robust export demand—particularly into North Africa. The rally, which comes ahead of the U.S. holiday, has been amplified by hedge funds reducing long-held short positions in both CBOT and Kansas HRW contracts. Images of combine harvesters stuck in muddy fields underscore the slow start to the U.S. winter wheat harvest. Persistent rains across the southern Plains—especially in Oklahoma and Kansas—have delayed progress. In Oklahoma, just 5% of the crop had been harvested by early June, down sharply from 44% last year and well below the five-year average of 23%. Nationwide, only 10% of the winter wheat crop has been harvested—the slowest pace since 2019—compared with the seasonal norm around 18%, according to USDA. Despite the harvest delays, early crop quality and yields have exceeded expectations. The USDA this week also lifted its spring wheat condition rating to 57% good or excellent, up from 53%, suggesting no immediate threat to overall production. On the charts, the most traded September and December CBOT wheat contracts have approached key trendline resistance, at USD 5.94 and USD 6.19 respectively, with last trades at USD 5.905 and USD 6.12.
Elsewhere, weather challenges continue to unfold. In Russia, drought-hit regions such as Krasnodar and Rostov have declared emergencies, fuelling protective buying in Europe. In Western Europe, spring rains have improved crop conditions but delayed ripening and harvest, while also raising the risk of disease. In response, the benchmark Paris Milling Wheat contract recently broke back above EUR 200/ton, last trading near a one-month high around EUR 208.
Whether these developments mark a sustainable bottom around USD 5 (CBOT wheat) remains to be seen. So far, the main bid has come from funds reducing bearish exposure. Hedge funds have maintained a net short in CBOT wheat for three consecutive years, and in Kansas HRW since August 2023. In the four weeks to June 10, managed money cut its CBOT net short by 26% to 94k contracts, while the Kansas net short was trimmed by just 7% to 75k.
As per the charts above, additional price strength leading to an upside break may add further momentum to the rally, not necessarily due to price-friendly fundamentals, but first of all due to buying as wrong-footed longs scale back bearish bets. For the rally to become more sustainable, thereby signalling a low in the market following three years of weakness, the global production outlook needs to deteriorate further, so for now we view the rally as technically more than fundamentally driven.
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