Odds Suggest the Low is In

Published on: 10:18AM Jul 16, 2009
The general perception is once the annual winter wheat harvest has reached sixty percent complete it may be used as a measure to suggest wheat futures have reached a seasonal low. The thought is the majority of the new crop wheat harvest is complete and less likely to produce further significant supply price pressure. Allendale Inc’s research measured each harvest year dating back to 2001 and analyzed the CBOT Soft Red Winter Wheat (SRWW) open futures price for the month of July, low, high and closing price as well as the closing price for the month of August. As a side note the winter wheat harvest reached a minimum of 60% complete within the first eight days of July from 2001-2006 and between the 12th and 15th from 2007-2009 to imply the majority of the harvest complete within the first half of the month.
Of the most recent eight years, the closing price futures level for the month of July exceeded the opening price six of the years (75%) with the exception of 2008 by 62 cents per bushel and 2004 by 23 cents per bushel. On average the closing price exceeded the opening price for the month of July by 27.5 cents per bushels with a range of +2 to +47 cents per bushel. As of July 15th, 2009, the SRWW futures have reached a high of thirteen and a half cents over the opening for the month.
            When analyzing the performance of the SRWW futures price from the month of July close to the month of August close, odds declined suggesting strength in futures was more difficulty to maintain. Over the most recent eight years, odds were 37.5% the August close was lower than the July close.
            The above research suggest there may be a 75% chance the month of July closing price could be higher than the opening futures price but odds decline into the closing price for August suggesting it may not be prudent to over extend the bullish enthusiasm.
            On a side note there may be a correlation between a year on year notable stock build of wheat and why in 2004 and 2008 the month of July wheat futures were not successful in closing higher than the month opening price. The year on year world wheat stock build of wheat from 2003-2004 was 14% and 2007-2008 was 38%.
Producers of wheat may consider how the potential climb in the month of July wheat futures may adversely impact basis levels response and end users may want to consider how harvest pressure may present an opportunity to secure needs especially in the months of July and August when working with flat cash forward contracts.
What are your thoughts regarding the odds of the month of July futures price to be higher at the end of this month vs the opening? Is there an opportunity for the producer, investor as well as the end users?.........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