Wheat hits its lowest level since early July 🚩 Russia resumes exports. What are funds doing after the massive sell-off?

The prospect of increased Russian grain exports remains one of the main factors limiting the upside potential for wheat prices. The resumption of vessel departures from the Sea of Azov could improve the availability of supplies from the Black Sea region, which plays a crucial role in global grain trade. At the same time, expectations of strong harvests in Australia, Argentina, and the United States reinforce the outlook for abundant global supply.

However, geopolitical uncertainty remains a significant risk factor. Attacks on transport infrastructure and threats to shipping routes could disrupt exports and trigger sudden increases in the geopolitical risk premium. Conversely, a potential de-escalation of the Russia-Ukraine conflict could facilitate grain shipments, putting additional downward pressure on prices.

The largest buyers were the Philippines, South Korea, and Indonesia. Reports of Chinese interest in US wheat provide another potential source of demand support, although the scale of any future purchases remains uncertain.

From a supply-demand perspective, the key question is whether stronger export orders will develop into a sustained trend. A single strong weekly reading may not be enough to reverse the pressure resulting from price competition among major global exporters.

According to CFTC data, managed money funds held a net short position equivalent to approximately 74,600 CBOT wheat contracts in late October. Short covering could then accelerate upward price movements.

However, the accumulation of short positions does not automatically mean that the downtrend is approaching its end. A more sustainable recovery would likely require an improvement in the supply-demand balance, reduced export competition, or a significant increase in purchases of US wheat. In early November, the fundamental balance still favors sellers, although nine consecutive weeks of declines have increased the potential for a technical rebound.

Wheat futures (WHEAT) have fallen to levels not seen since early July, completely erasing the previous euphoric rally. The RSI indicator, currently at 23, confirms deeply oversold conditions, although the outlook for buyers may remain challenging without a shift in the positioning of major speculative funds (managed money). From a price action perspective, an important support level is currently located around 575 cents per bushel, while resistance can be found near 627 cents per bushel.

Managed money funds increased their net short position to approximately 74,600 contracts, representing a surge of more than 43%. At the same time, rising open interest suggests that new positions are being established in the market, rather than the activity being driven solely by the closing of existing trades.

CFTC data show that selling pressure in wheat is being driven by both the opening of new short positions and the liquidation of long positions. Particularly interesting is the behavior of producers and commercial traders, who increased their long exposure while simultaneously reducing short positions. This may suggest that participants in the physical wheat market are beginning to view current prices as increasingly attractive.

From a speculative positioning perspective, the substantial imbalance in favor of short positions raises the risk of a sharp rebound triggered by short covering. However, this does not automatically signal the end of the downtrend.

Eryk Szmyd XTB Financial Markets Analyst