What is Behind the Strength in Wheat?
May 14, 2015
TRADING COMMODITY FUTURES AND OPTIONS INVOLVES SUBSTANTIAL RISK OF LOSS AND MAY NOT BE SUITABLE FOR ALL INVESTORS. YOU SHOULD CAREFULLY CONSIDER WHETHER TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR CIRCUMSTANCES, KNOWLEDGE AND FINANCIAL RESOURCES.
On Thursday July Chicago Wheat surged almost 33 cents higher as funds aggressively covered a portion of their large short position. The fundamental and technical outlooks converged to produce the spark needed to trigger fund buying. So what caused this? And, maybe more importantly, could this be a longer term rally for wheat?
Like in corn the potential for a fund short covering rally in wheat was strong with funds short approximately 117,000 contracts coming into the week. All that was needed was a spark. This spark came from a mix of fundamental and technical inputs and resulted in a near 33 cent rally on Thursday alone.
Technically wheat had been in the process in putting in a potential bottoming formation. Then on Wednesday wheat attempted a breakout to the downside only to close marginally higher on the day. This had the technical set up leaning positive going into Thursday and when the ball started to roll large fund stops were hit as key resistance levels were breached.
The fundamental spark cane from weather and developments in Russia suggesting that the US could be a stronger player in the global export market. Strong storms and severe weather forecasts are causing damage and quality concerns in the US South and forecasts for El Nino bring the Australian crop into question. On top of this news out of Russia was that the Russian intervention price could be above export prices. This could mean that less Russian wheat exports will be available on the global market going forward which could lead to the US getting more export business.
We have some complimentary 2015 commodity reference calendars available. They are a little bigger than pocket sized and very useful if you follow markets. You can sign up for yours here - http://www.zaner.com/offers/calendar.asp
We have said for a while that wheat is about 200 million bushels in US export sales from being in a bull market. While the Russian news might not guarantee stronger US exports it (along with weather concerns) was enough to get funds spooked about their large short positions. But, in the recent history, concerns about lower Russian exports have ultimately proved to be unfounded. This could have been posturing to get wheat prices higher in order to sell at better prices. Even if this is not the case it is likely that wheat prices would not have to go much higher before export prices were above the Russian intervention levels again.
Longer term there is a lot of wheat in the world and projections are for ample wheat supplies for some time to come. This sharp rally off of lows may be short lived as producers may get more aggressive on selling wheat at higher prices. The fund short position is still very large and there may be more upside potential on a short covering rally. However, it may take a major weather issue for this rally to be sustainable longer term.
Please give us a call if you would like more info on the strategies we are using or if you would like to set up an account to put a plan in action. Ted Seifried - (312) 277-0113. Also, feel free to give me a call or shoot me an email if you would like to talk about your marketing plan, the markets, weather, or just to visit. Follow me on twitter @thetedspread if you like.
July Corn Daily chart:
July Soybeans Daily chart:
July Wheat Daily chart:
Producers looking to hedge all or a portion of their production may be rather interested in some of the options / options-futures strategies that I am currently using.
In my mind there has to be a balance. Neither technical nor fundamental analysis alone is enough to be consistent. Please give me a call for a trade recommendation, and we can put together a trade strategy tailored to your needs. Be safe!
Ted Seifried (312) 277-0113 or email@example.com
Additional charts, studies, and more of my commentary can be found at: http://markethead.com/2.0/free_trial.asp?ap=tseifrie
Futures, options and forex trading is speculative in nature and involves substantial risk of loss. This commentary should be conveyed as a solicitation for entry into derivitives transactions. All known news and events have already been factored into the price of the underlying commodities discussed. The limited risk characteristic of options refers to long options only; and refers to the amount of the loss, which is defined as premium paid on the option(s) plus commissions.
FOR CUSTOMERS TRADING OPTIONS, THESE FUTURES CHARTS ARE PRESENTED FOR INFORMATIONAL PURPOSES ONLY. THEY ARE INTENDED TO SHOW HOW INVESTING IN OPTIONS CAN DEPEND ON THE UNDERLYING FUTURES PRICES; SPECIFICALLY, WHETHER OR NOT AN OPTION PURCHASER IS BUYING AN IN-THE-MONEY, AT-THE-MONEY, OR OUT-OF-THE-MONEY OPTION. FURTHERMORE, THE PURCHASER WILL BE ABLE TO DETERMINE WHETHER OR NOT TO EXERCISE HIS RIGHT ON AN OPTION DEPENDING ON HOW THE OPTION'S STRIKE PRICE COMPARES TO THE UNDERLYING FUTURE'S PRICE. THE FUTURES CHARTS ARE NOT INTENDED TO IMPLY THAT OPTION PRICES MOVE IN TANDEM WITH FUTURES PRICES. IN FACT, OPTION PRICES MAY ONLY MOVE A FRACTION OF THE PRICE MOVE IN THE UNDERLYING FUTURES. IN SOME CASES, THE OPTION MAY NOT MOVE AT ALL OR EVEN MOVE IN THE OPPOSITE DIRECTION.