CROPS

Wheat producers or owners please read with caution and especially not before bedtime.

Wheat exports from the U.S. are lagging. Several familiar factors lead to this, including recent dollar strength against other currencies, adequate to abundant production from competing sources, and weak or confused demand among normally strong buyers.

Exports are the key fundamental variable for wheat prices.

This is especially true for white-wheat producers in the Pacific Northwest, as some 80 percent of the regional wheat crop is consumed overseas.

The price-gloomy fundamentals only look darker to the South, as our traditional wheat-selling competition; Argentina and Australia are harvesting heavy wheat crops as this is written.

At this point, unless the northern hemisphere's spring-weather-market rumor season (only 10 weeks away) can produce some really big stories, there is a large overhang of wheat supplies on the market price.

No surprise that the wheat price charts show negative trend lines over the last 11 months, with Chicago soft red winter wheat prices down $2.50 (-28 percent) since Feb. 9, 2011. Kansas City hard red winter wheat has sagged $3.00 (-29 percent), Minneapolis hard red spring wheat is off 24 percent from its high of about $10.70 per bushel last June, and white wheat bids in Portland are down about $1.65 (-21 percent).

Trends of this magnitude do not change easily or quickly.

The usual process of putting in a base pattern from which a significant rally may emerge involves a series of lows over a relatively long period of time (many weeks) as the market seeks out values, which uncover reliable buying support from end-users.

Then a story of some new fundamental begins to capture the market's attention, i.e. a hard freeze after the crop has emerged from dormancy, or hot, dry weather at key points of crop development.

The current chart pattern already suggests that such a price process may have begun, as the last three lows of Oct. 3 ($5.96), Nov. 25 ($5.86) and Dec. 15 ($5.77) are all within 20 cents of each other, and each is followed immediately by a run up of only six to 10 trading days in duration.

The emerging low would "fail" on a move below about $5.77 in Chicago. What a wheat owner seeks is a pattern of higher lows on the chart.

We do not yet have this characteristic.

The sole bright spot in the valley in all of this is that when a market has beat down prices so vigorously, the risk of owning wheat is certainly lower than is was this time last year.

The intensity and duration of the downward shift creates good chances for reactive moves to the upside that need not be based on any clear fundamental story and may be as large as $1 per bushel or more like the recent 11-day, 79-cent move in Chicago wheat that started Dec. 16 and ended on January 3.

While this type of price change is a " trader's" move, and cannot be easily captured, it certainly allows some relief from lower prices, and every long-term trend has an end. Such will be the likely shape of our opportunities for some time to come.

Gary Hofer can be reached at 509-337-8417 weekdays between 8 and 11 a.m. Pacific Time. Comments and questions are welcome.

The information and opinions contained herein comes 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. Past performance is not necessarily indicative of future results.