The cure for high prices in commodity markets is high prices, traders say.

The idea is that the supply void behind the rally is resolved as elevated values encourage extra production.

But in the case of the wheat rally, the medicine is sure taking its time to work – and doesn’t look like hitting the spot for a while, if the US Department of Agriculture’s first forecasts for 2022-23 are anything to go by.

Stocks decline

Indeed, wheat price prospects look strong.

World wheat stocks will shrink for a third successive season in 2022-23, as Ukraine’s output is depressed by war and Morocco’s by drought, while Australia sees a retreat as weather (maybe) returns to normal, after two harvests boosted by La Nina-inspired rains.

Global inventories will end the season at a six-year low, the USDA believes.

But they will feel tighter still, when compared with rises in demand since then, in the stocks-to-use ratio. This will fall to an eight-year low.

To judge by the inventories in the top exporter countries – Argentina, Australia, Canada, the European Union, Russia, Ukraine and the US, whose supplies have a particular influence on prices – the situation is tighter still.

The exporter stocks to world use ratio will dip by 0.7 points year on year to 6.8%, its lowest since 2007-08, and suggesting it will stay a seller’s market for a while yet.

Rivals’ signs

Not that wheat bulls should overstate their cause.

The grain’s supply and demand dynamics should not be taken in isolation with, for instance, the outlook for rival crops, in both consumption and production terms, having an influence on values too.

For oilseeds flagship soybeans, the price outlook is not so upbeat, with the USDA forecasting a 16.8% jump in world stocks in 2022-23 to 99.6m tonnes – their fifth largest on record – although given growth in consumption too the figure is not quite as bearish as it might appear.

Exporter stocks to use, at 16.2%, will end the season at their second tightest in a decade.

Nor is the case for elevated corn prices as strong. Even though global stocks will ease a little in 2022-23, that decline will be focused on China, whose inventories are less influential on world prices.

Corn stocks held by major exporters will swell for a second season, to the equivalent of 4.7% of world inventories, not far below the five-year average of 5.2%.

End when?

Still, even if such factors could keep a lid on corn and soybean values, and drag on wheat prices, don’t expect a marked dip in values until there are signs of supply repair.

That will take until at least the northern hemisphere autumn sowing season, and likely not until 2023, and evidence that these crops have made it through the winter unscathed.

In the words of the USDA itself, wheat “futures prices are expected to remain sharply elevated through the first part of the marketing year”.