Wheat futures have been on a strong upward trend, with Chicago soft red winter wheat (ZWH25) and Kansas City hard red winter wheat (KEH25) hitting three-month highs on Feb. 14. The bullish momentum is driven by tightening global supplies, a weakening U.S. dollar, and spillover strength from the corn market.
Key Drivers of the Wheat Rally
1. Reduced Russian Wheat Export and Harvest Forecasts
The Russian consultancy IKAR revised its 2024-2025 Russian wheat export forecast down from 43.5 million metric tons (MT) to 43 million MT.
The 2025 Russian wheat harvest forecast was also lowered from 84 million MT to 82 million MT due to drought and severe frosts.
Russia’s wheat quality issues and unprofitable export prices are additional bearish factors for supply.
2. USDA’s Slightly Bullish WASDE Report
U.S. wheat ending stocks were lowered by 4 million bushels to 794 million due to an uptick in domestic food use.
Global wheat stocks dropped to 257.6 million MT, slightly below market expectations.
Russian and Ukrainian wheat export forecasts were both cut by 0.5 million MT due to logistical constraints.
3. Weakening U.S. Dollar Supports Grain Prices
The U.S. Dollar Index ($DXY) hit a two-month low and is trending lower, making U.S. wheat cheaper for foreign buyers.
A softer dollar typically boosts U.S. grain exports, increasing demand for wheat.
4. Corn Market Strength Providing Additional Support
March corn futures reached a nine-month high, approaching the key $5.00 per bushel resistance level.
Historically, corn price trends strongly influence wheat, as they compete for acreage and share similar demand drivers.
Potential for a Weather-Driven Market Surge
Spring and summer months often bring weather-market volatility, impacting U.S. corn, soybean, and wheat production.
If corn or soybean prices spike due to adverse weather, wheat will likely follow suit.
Trading Strategy: Call Options for Upside Potential
Buying out-of-the-money call options on July soft red winter wheat futures (ZWN25) could be an attractive play.
Lower implied volatility in early-stage uptrends keeps option premiums lower.
July SRW wheat options expire in late June, providing exposure to potential summer weather risks.
