Wheat Leads the Way Higher
Wednesday morning, before the wheat rally really kicked off, we moved our bias to outright Bullish, sighting relative strength versus corn and beans and a risk off trade in other markets such as crude oil. The relative strength showed signs of exhaustion in our eyes. Knowing that the Funds have been holding their largest net short position in over five years has also been living in the back of our mind. Friday's weekly Commitment of Traders report showed Funds holding 126,324 futures/options contracts short in the wheat market. Broken down that is 58,776 longs VS 185,100 shorts. Below is an illustration of how that stacks up with historical Fund positioning. The yellow line represents the net position going back to 2006. With such a large net short position comes a risk of a high velocity short covering rally.
Below is an updated daily chart of July Chicago wheat. In Thursday's interview with RFD-TV (watch now: Short Covering Continues in Wheat - Blue Line Futures) and in our morning reports, we talked about 665-670 being an important pocket to keep an eye on. This pocket represetnts previously important price points including significant support thourhg March and the first half of April. A close back above this pocket could spur additional short covering twoards 715(ish), which represents the upper end of the range since March.
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