CROPS

We are becalmed in the center between wheat price potential highs and lows in a zone that has persisted since mid-November.

Channels of this magnitude and duration (about 75 cents per bushel and 3.5 months) usually require something new entering the mind of the market to break out. The overall trend is a very mild upward bias, with higher highs and higher lows as the price ping-pongs slowly up the channel.

The futures markets are labeled "futures" because they anticipate price. All available information in the possession of traders about where the price is likely to go is incorporated into the sum of the actual buy and sell decisions made each moment every day. We are just barely at the beginning of the spring weather "silly season," during which the market becomes hyper-sensitive to every weather forecast. On balance, this season has a positive effect on prices, but also adds volatility. Present USDA drought monitor maps indicate major U.S. wheat production areas are not excessively dry.

Market stress had been coming from potential instability of European and U.S. financial markets. Those pressures have declined a bit from 60 days ago, but are not eliminated and will likely re-emerge at some point.

Now the "outside" pressure on wheat and other markets is rising around Iranian nuclear programs and the response by Israel and the U.S.-led coalition. The most direct effect on wheat is in the apparent building of wheat reserves by those in the neighborhood.

Last Thursday, for the first time since 2009, Iran bought 120,000 metric tonnes (4.4 million bushels) of wheat from U.S. sources, even with all the tensions and tough sanctions. Although food has been excluded from sanctions, many traders were surprised. The transaction suggests that U.S. wheat is competitively priced and that Iran is worried about possible disruption of supplies in the future. Consumerdisruptive factors, i.e. military actions in the Middle East, are generally not price-positive for wheat.

In the background, some Chinese wheat production areas are seeing drought conditions and we have seen a few Chinese purchases of U.S. wheat in recent weeks, suggesting some shrinkage in their crop expectations. There are also some production losses visible in the Former Soviet Union and northern Europe.

U.S. exports are improving, but no drama yet. There is enough wheat in the world that a run at the bottom of the price channel is still easily in reach, with a possible low end of $6.25 to $6.10 or so in Chicago, 50 cents below current levels. A break above $7, 30 cents higher than Monday, will serve as an announcement of a positive change in market pattern.

Government reports show large futures trading funds heavily short (sold) and commercial firms very long (bought) versus history. In the past this combination has consistently yielded big, fast upward price moves. It is like overhanging snow on a mountainside...lots of potential. Probably should not picnic underneath (don't get caught short).

USDA World Agricultural Supply and Demand Estimates are to be released Friday morning. USDA reports sometimes trigger significant price moves if the trade is surprised. Stay tuned.

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.