Wheat Futures: Navigating Short-Term Bulls in a Bearish Landscape

The wheat market has entered a precarious phase, oscillating between short-term bullish pressures and long-term bearish fundamentals. Recent updates from the USDA's July 2025 World Agricultural Supply and Demand Estimates (WASDE) report reveal a complex interplay of factors—from weather disruptions and geopolitical tensions to surging global production—that are shaping price dynamics. For traders and investors, the challenge lies in balancing opportunistic short-term strategies against the gravitational pull of oversupply.

Supply-Demand Tightropes: U.S. Abundance vs. Global Surpluses

The July WASDE report painted a contradictory picture. U.S. wheat production for the 2025/26 crop year was raised to 1.929 billion bushels, the highest since 2016/17, driven by improved yields and acreage for winter, spring, and durum wheat. This surge, however, is offset by a slight reduction in ending stocks to 890 million bushels, signaling a modest tightening of U.S. supplies. Meanwhile, global wheat production for 2025/26 is now projected at 808.55 million metric tons (MMT)—a minor downward revision from June's estimate—but this still reflects a supply environment dominated by record outputs from the EU (137.25 MMT) and Russia (83.5 MMT).

The tension? While U.S. production is bullish for domestic prices, global oversupply persists. Ending stocks for 2025/26 are 261.52 MMT, barely reduced from June's forecast, and the stocks-to-use ratio of 32.2% remains below the 10-year average. This suggests that while regional shortages (e.g., Ukraine, China) may spark volatility, the broader market is still weighed down by ample supplies.

Geopolitical Crosscurrents: From Algeria to the Black Sea

Geopolitical risks are amplifying price swings. Algeria's recent wheat tenders, favoring European suppliers, underscore resilient demand in key regions. Yet, the Ukraine-Russia war remains a wildcard. Ukrainian wheat prices have surged to $207–210/MT, driven by reduced yields amid ongoing conflict. Meanwhile, Russia's drought declarations in Krasnodar and Rostov—a critical wheat belt—have sparked protective buying, though its 83.5 MMT production forecast hints at resilience.

The EU's 137.25 MMT output, a record high, adds to the surplus, while China's 142 MMT projection masks risks: drought in its northern plains could trim yields, creating a supply-demand imbalance. These regional imbalances create pockets of opportunity, but global oversupply remains the dominant force.

Weather Whiplash: Delays, Droughts, and Heatwaves

Weather volatility is the immediate catalyst for price spikes. In the U.S., the winter wheat harvest in Kansas and Oklahoma was delayed by heavy rains, with only 3% of the crop harvested by June 16—far below the five-year average. Worse, looming heatwaves threaten crop quality, potentially reducing exportable supplies.

Globally, China's northern drought and European mixed conditions (Spain and Romania benefiting from rains, France/Germany facing dryness) add uncertainty. Russia's drought emergencies have already spurred protective buying, pushing CBOT wheat futures to a two-month high. These short-term disruptions are keeping prices elevated, but traders must remain wary of long-term fundamentals.

Price Outlook: Bulls Cling to Technicals, Bears to Fundamentals

CBOT wheat futures have risen 2.5–4.6% since mid-June, reaching $6.20/bu. at times, driven by short-covering rallies and hedge funds reducing net shorts by 26%. Technical resistance levels are critical: the September contract faces a ceiling at $5.94, while December approaches $6.19. However, the USDA's revised farmgate price estimate—$5.70/bu.—reflects underlying bearishness.

The disconnect? Short-term bulls bet on weather-driven scarcity and geopolitical disruptions, while bears point to record U.S. production, a 32.2% stocks-to-use ratio, and a strong euro suppressing European export competitiveness. If global demand from Asia (India, Pakistan) weakens further, prices could slide.

Investment Strategy: Short-Term Plays, Long-Term Caution

Traders should exploit short-term volatility but avoid overcommitting to long positions. Buy the September CBOT futures if the $6.20 support holds, with a stop-loss below $5.90, targeting resistance at $5.94–$6.19. Meanwhile, avoid long-term positions due to the global oversupply and the likelihood of weaker Asian demand by year-end.

Monitor three key indicators:
1. U.S. harvest progress: Delays or quality downgrades could sustain rallies.
2. China's northern drought impact: Reduced yields could tighten global supplies.
3. Geopolitical flare-ups: Escalation in Ukraine or Iran-Israel tensions could create temporary spikes.

Conclusion

The wheat market is a study in duality: short-term bullishness fueled by weather and geopolitical risks contrasts with long-term bearishness rooted in global surpluses. Traders must remain agile, capitalizing on volatility while hedging against the weight of oversupply. As the old adage goes, “The market can stay irrational longer than you can stay solvent.” In wheat, that means staying nimble—and never ignoring the big picture.