CROPS

White wheat bids in Portland for late September (4 months ago) were close to $6.30 per bushel (Chicago was at $6.40). This week the bid is about $6.33 for white (Chicago $6.16). Wheat prices have accomplished very little in those months in the way of a trend, and there is little in the fundamental supply and demand balance sheet that appears large enough to trigger a serious breakout unless weather becomes really extreme ahead of harvest. There may be some who would argue from a more positive position, maybe based on a review of the difference or "spread" between leading contracts of Chicago wheat and corn prices.

Presently, wheat is about even with corn. Over the last 4 months, that difference has seen wheat as much as 25 cents below corn, the lowest point for this relationship in at least the last 44 years of history for this spread since 1968.

The historical "normal" level for the wheat/corn relationship is for wheat to be closer to $1.30 per bushel over corn.

Demand for corn has been increased by ethanol production intended for blending with gasoline, but the distillation process does not consume the corn completely. In fact, according to a recent USDA study, one bushel of corn (56 pounds) utilized in ethanol production will produce 18 pounds of DDG's (dried distillers grains) and replace 21 pounds of corn feed equivalent. The vast majority of demand for corn in the world market is for feeding animals. Very little is actually consumed by humans directly. But the world is hungry for meat, and the supply of corn is tight compared to usage. This will keep corn prices strong, which also supports wheat, even with plenty of supply available.

Even the most cursory of technical reviews of the trend chart for the wheat/ corn spread quickly suggests that even a minor reaction to the extreme historical lows recently seen allows for wheat to recover from 50 cents to a dollar or more against corn prices. It may be that both will be higher, with wheat advancing more quickly, but it seems a bit more likely that both may be lower, with wheat falling less. Either way, emerging changes in the wheat/corn spread will be at least a "tell" for larger trend changes coming in the individual markets.

Being aware of how markets are trending and how those markets affect us is essential to protecting our personal economic interests. There are very few who cannot benefit.

It is a bit like being aware of where you are walking at night. There are ditches and curbs in the market, as well as well-lit downtown areas that are relatively safe, or alleyways and back streets that are only for the prepared. If the average busy person with a 401k or bushels of wheat in the bin regularly sets aside a few minutes to ponder what the markets are saying (not the talking heads - turn the sound down), there is a major payoff, even if only in anxiety reduction. This does not require understanding the "chatter" from the pundits. The quickest way to gain an intuitive grasp of what is happening in anything financial is to take a close look at a chart of price behavior, the "footprints" of any market animal. Is the slope upward toward the right hand side of the picture, or is it more like a ski run to the downside at the bottom left? This kind of analysis does not require advanced study or detailed knowledge. No matter how persuasive the story is, if it does not show obvious positive behavior, there is no reason to buy, invest, or hold anything.

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.