Global wheat prices, which were in a strong downtrend since 2012, have seen a sharp reversal since January.

Wheat contracts traded on the Chicago Board of Trade (CBOT) had tumbled about 42 per cent from the 2012 high of $9.47 a bushel to a low of $5.50 in January. The initial trigger for the price reversal came from the unusually cold and freezing winter in North America and dry weather in Latin America that could have caused damage to the crops and delayed shipments from the US, Canada and Argentina.

The rally has gained momentum now after the Crimean crisis. Concern over a possible supply threat from the Black Sea region is providing additional support for wheat.

According to data available from the International Grains Council, Russia and Ukraine together, which ship from the Black Sea region, contribute about 15 per cent of the global wheat export. The total supply of wheat for 2012-13 has been estimated by the US Department of Agriculture (USDA) to fall by 4.6 per cent to 855 million tonnes from 896 million tonnes in 2011-12. However, supply is expected to increase in 2013-14 by some 4 per cent to 888 million tonnes on higher production in India and Australia.

On the other hand, global demand, which is estimated to have dropped by 2.6 per cent in 2012-13 to 679 million tonnes, is projected to increase by 3.7 per cent in 2013-14 to 704 million tonnes. Expected increase in consumption from India, Australia, Iraq and Morocco will contribute to increased demand, according to data from the USDA.

On the domestic front, wheat production has been projected lower by 2.5 per cent at 92.5 million tonnes in 2013-14 as compared with an estimated rise in supply of 9.2 per cent in 2012-13. Demand is expected to increase 4.4 per cent in 2013-14 from an estimated 3.4 per cent increase in 2012-13.

OutlookLong-term view : Wheat futures trading near ₹1,600 per quintal on the National Commodity and Derivatives Exchange (NCDEX) is on a long-term uptrend.

There is still room left for the rally to extend within this uptrend. An important long-term resistance is near ₹1,830. Failure to break this resistance could turn the outlook negative. A reversal from ₹1,830 would have the potential to drag the contract lower to ₹1,400-1,350 in the long term. On the other hand,

if the contract manages to breach the resistance at ₹1,830, the current rally can extend to test the next resistance in the ₹1,930-1,950 zone. In the global market, CBOT wheat contracts, which are currently trading near $6.93 a bushel, are nearing a crucial long-term resistance at $8.

The contract has to breach this resistance to extend the current rally to $9 and $10. That said, caution is required at this juncture, for failure to breach the resistances in global and local chart can usher in deep declines.

Medium-term view: The medium-term trend is up for the NCDEX wheat contract. The 100-week moving average currently at ₹1,530 is the key support.

As long as the contract trades above this support, it can rise to ₹1,800-1,830 over the medium-term. The outlook would turn negative only if the contract falls below its 100-week moving average. The subsequent targets on such a fall will be ₹1,500 and ₹1,450.

Short-term view : For the short-term, the contract could trade in a sideways range. The resistance at ₹1,710 is holding well as of now. Inability to breach this resistance could keep the contract in a range of ₹1,580 and ₹1,710 in the short-term.

However, the bias within this range would remain bullish. A breakout above ₹1,710 will then take the contract higher to ₹1,780. The 55-week moving average currently near ₹1,585 is the key short-term support for the contract. If the contract falls below ₹1,585, it can target ₹1,530. But the probability for such a fall is less as of now.

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