CROPS

End-of-year position adjustments coming up? Most very large futures traders are holding onto extremely heavy net short-sold positions in Chicago wheat. The other major wheat contracts in Kansas City hard red winter and Minneapolis spring also reflect net short speculative po- sitions, although less ponderous than Chicago.

Since this category of traders is known for rapidly shifting from one side of the ledger to the other periodically, this big bulge in net-sold positions will ultimately lead to a run to the upside for wheat prices, probably associated with some big volume days and a large drop in open interest (an overall decline in the number of open positions held by all traders in the contract).

This technical information is worth taking the time to understand. A couple of times each year the traders required to report aggregate positions to the government regulators (CFTC) may reach significant extremes. In the present case the "Large Speculative" group is carrying a net short-sold position greater than at any previous time in at least the last decade, while the "Commercials" hold the opposite. This is a very reliable indicator of pending trend-change to the upside, although not easy to time closely.

It is like a large snow overhang ready to avalanche; it may or may not, but one does not want to be in the wrong position when it goes. In the face of a general global surplus of wheat supply and the promise of more to come from the southern hemisphere harvest, the upward effect may be muted, but the positions are large enough to move prices once conditions are ripe.

In the last weeks of 2013, it seems that no-one cares about wheat any more. Daily volume of trade has declined, while the long-established negative trend line has prevailed. Chicago wheat has dropped 20 cents per bushel since Friday, December 13. KC wheat is down 24 cents and Minneapolis is off about 16. White wheat prices in Portland have drifted down 13 cents or so. All of this decline has been "death by a thousand cuts"hellip;no fanfare or flash, just sneaking south inch-by-inch. The danger to a trader on either side of this market is of becoming complacent.

The background markets, such as other grains, interest rates, copper, US dollar, etc., are all trading quietly, in either gentle downward or sideways range patterns, providing little inspiration for wheat. When it is this quiet, we will eventually reach the point where markets focus too tightly and forget to scan the horizon for major emerging factors, setting up sur- prise moves. The trend for wheat in this picture is down, but getting very, very mature.

And so it goes; excessive sensitivity and drama followed by periods of hypnotic drift, punctuated by alternating mo- ments of terror and euphoriahellip;wait, whose family are we discussing? Oh, yeah, it's the futures markets.

Information and opinions contained herein come from sources believed to be reliable, but are not guaranteed as to accuracy or completeness. The risk of loss in trading futures and/or options is substantial. Each investor must consider whether this is a suitable investment. When trading futures and/or options, it is possible to lose more than the full value of your account. All funds committed should be risk capital.