Feb 20, 2011

Published on: 21:39PM Feb 20, 2011

Wheat lost a fair amount of ground this week and everyone responded by heading towards neutral. The funds sold their longs, and the commercials bought, covering their shorts. We have seen weeks with lots of selling before: early January, middle December, middle November and Middle October. Will this time be different or will we have further rallies? The funds were held the most contracts for delivery they have had in quite some time. Does that mean the coming Chinese wheat failure is priced in? Well... The selling has been in the old crop contracts. December wheat looks bullish. My guess is the Chinese wheat crop is going to be pretty poor, and that we will see rotation back into December contracts after a couple more days of selling. But that's a guesstimate, not a promise. If $10 wheat makes money for you, get serious about planting; it will be a big surprise to me if we don't see prices above $10 soon.

Bean prices resemble wheat prices: selling in the old crop with the new crop holding up pretty well. November beans are not as bullish looking as wheat, but I'd not bet against $15 beans for sometime this year. The CoT looks like wheat -- sort of. Wheat saw considerable reduction in open interest; beans saw funds release longs, commercials release shorts but with very little reduction in open interest.

Corn was odd man out this week. Funds and commercials are placed pretty much where they were last week. Prices are pretty much where they were last week for both the old crop and the new crop.

I'm not hearing anything about the prospects for Russian wheat this year. There are several ways to interpret that, but my interpretation bears much less weight than the market view. My guess is a bad or even mediocre Russian crop will surprise a lot of players. If Argentina and Australia have average or worse crops, it will take a heck of a crop out of the US and Canada to keep wheat south of $14. There are a lot of 'ifs' in that statement. The thing to take away is that we will have another interesting year -- just how interesting is the question.