Joe Victor is a Business Development Specialist with Minneapolis Grain Exchange, Inc., where he monitors cash grain activity and cash grain opportunities. He provides marketing advice through this blog.
20 Days and Counting
Jan 08, 2009
Wheat-20 Days and Counting: (01/07/09)
Since December 5th, 2008, March CBOT soft red winter wheat futures have gained 35%, July futures have gained 33% and both are holding very impressive upward trendline support.
Fundamental reasons for the notable rally vary from a strong tender line-up for milling quality wheat, potential US and world competitors reduced fall seedings, smaller harvest of quality milling wheat in both Argentina and Australia and preliminary signs of dryness concerns for the key production region of the southern Plains.
Equally important and likely a more prudent reason for the recent rally is funds “new” money flow 2009. Wheat as well as a host of other commodity futures have benefited from the new money flow mentality since early in the month of December with soybeans up 29%, soybean oil up 29%, soybean meal up 27%, corn up 38% as well as a host of “agriculture softs” with cotton up 21%, cocoa up 20%, and sugar up 16%.
As you are able to ascertain, supportive fundamental factors for wheat are not likely used in soybeans, cotton or cocoa and with the present strength in old and new crop wheat futures, opportunity may be knocking.
Allendale is well aware odds have been solid for old crop wheat prices to achieve a national cash average high 50% of the time in the months of December and January and dating back to 1999, have never made the cash average high in the months of February, March or April.
The cost of carry on wheat valued at $5.05 is 4 cents per bushel per month or 8 cents from March to May futures. The present March-May futures spread at twelve and three quarter cents has been ranged bound between 11 and 15 cents since the Sept and Oct timeframe. There is little technical or fundamental rational for the spread to narrow and may suggest if the spread is not willing to call for the wheat based on insufficient supply to meet demand, it may be prudent to take advantage of the present futures run on old crop wheat, by moving the 65% of wheat Allendale has hedged in March futures, to the cash market and lift the hedge, presently valued at $7.42 for nearly a dollar gain plus the cash value of the wheat. Allendale would also advise to move the balance (35%) of 2008’s wheat inventory to the cash markets realizing odds have not favored a cash rally past Jan through April.
If you are bullish to wheat beyond present levels, you may consider re-owning the 2008 crop via old crop May CBOT SRWW futures on a pull back to the psychological $6 technical support level but with a tight stop of no more than 12 cents.
Allendale invites your comments and encourages you to have your old crop wheat marketing plan in place and stick to it. If you do not presently have a plan, please contact your Allendale representative to customize one, specifically for your business operation…..Joe Victor
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The thoughts expressed and the basic data from which they are drawn are believed to be reliable but cannot be guaranteed. Any opinions expressed herein are subject to change without notice. Hypothetical or simulated performance results have certain inherent limitations. Simulated results do not represent actual trading. Simulated trading programs are subject to the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. Commodity trading may not be suitable for recipients of this publication. This is not a solicitation of the purchase or sale of any commodities. Those acting on this information are responsible for their own actions. Any republication, or other use of this information and thoughts expressed herein without the written permission of Allendale, Inc., is strictly prohibited. Allendale Inc. c2009