Wheat Prices: A Bunch of Reasons to Rise… BUT an Elliott Wave Count Ain’t One

Wheat’s 45% sell-off to 14-month lows makes no “fundamental” sense AND it makes all the Elliott wave sense in the world

by Nico Isaac
Updated: December 12, 2022

Several years ago, I read a fascinating article in History Today about the "Myth of Mummy Wheat." In the 1840s, Egyptologists discovered wheat in the tombs of ancient pharaohs, likely as an offering of fertility in the next life. In turn, throughout the 19th century, European sensationalists backed by Napoleon Bonaparte claimed those millennia-old seeds could be re-grown outside, thanks to the preservation in which they'd been stored.

But in 1897, the director of the Royal Botanic Garden performed an experiment using wheat grains taken from a 3000-year-old tomb. No regenerative abilities were proven, and thus, the "Mummy Wheat" myth was debunked.

Well, from the tombs of ancient pharaohs to the trends in financial markets, we have another myth we'd like to debunk; namely, the widely popular notion of news-driven markets. You could think of it like this: A market is like an ancient Egyptian chariot. On its own, it just sits there, stationary, until some external event known as a "fundamental" is tied to the wagon, thus moving it along in a specific direction.

Events perceived as positive for a market's growth cause prices to rally while negative events cause declines.

But when you test this theory in real-world conditions, it's seeds rarely bear the right fruit. Take the recent performance in wheat futures, for example. In mid-November, you couldn't swing a grain stalk without hitting some article on wheat's bountiful bullish "fundamental" backdrop. To wit:

On November 16, Farm Policy revealed a historic low in global wheat stocks:

"In its monthly Wheat Outlook report earlier this week, the USDA's Economic Research Service pointed out that, '2022/23 global ending stocks... remain the tightest since 2016/17. China accounts for more than 50 percent of 2022/23 global ending stocks but its stocks are largely not available to the public. When China is removed from the global picture, stocks are even tighter at 123.5 MMT, the lowest since 2007/08.'"

On November 15, Bloomberg added:

"Strong grain demand will outstrip supply for years to come, stoking more volatility that's been exacerbated by the war in Europe."

And on November 15, Reuters revealed that Ukraine, where 40% of the world's wheat comes from, saw a "30.8% decline in grain exports so far in 2022/23."

In turn, the "fundamental" horse tied to wheat's price wagon was primed to take the grain straight up.

But instead, wheat prices wilted like the ancient 3000-year-old seeds planted in 19^th century soil. On December 8, wheat tapped its lowest level in 14 months, in fact, continuing a downtrend that has persisted in the grain since hitting record highs in March.

The BALE-ion dollar question is -- why?

The answer -- "fundamentals" are not the main driver of market trends; investor psychology, which unfolds as Elliott wave patterns directly on price charts, is.

Here, we go back to June 22, and exhume our Daily Commodity Junctures service from that day. There, we showed this bearish Elliott wave count for wheat. The rally off the January 2022 low was a complete, wave (b) move of a larger three-wave structure. The price reversal off the March peak was, then, the start of more significant, five-wave decline with much further downside potential to below 750.

And, from there, wheat continued to weaken, plummeting to a 14-month low at 725 on December 8.

At the end of the day, a trader's loyalty lies to those models that truly stand the "tests" of time. In December, we created a brand-new Commodities Pro Service that combines the intraday needs of speculators with the long-term focus of investors, leaving nothing left to chance.

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