CROPS

In the last week, Chicago wheat September futures were violent, printing a high at $6.94 per bushel Monday, and promptly collapsing to $6.43 by Wednesday. Then Friday, upon the release of the latest USDA statistics, the price screamed up to $6.95. That is 51 cents per bushel down and 52 cents back up between Monday and Friday. Might as well call it "volatility!" New crop (August) white wheat prices at Portland were a bit less exciting, down 17 cents, then up 15 with a net loss of about 2 cents on the week to settle at about $6.70 per bushel. If you sneezed, you missed the drama.

The biggest likely cause for the big upward price-pop last Friday was actually not the USDA report released before the opening of trade that morning, but short-covering (buying back sold contracts) by large trading funds on behalf of investors that would not know a bushel from a blackberry.

A plausible trigger for the funds' re-positioning movement was end-of-month and end-of-quarter position adjustments and a soon-to-expire May contract, notwithstanding the report showing 22 million fewer bushels of wheat in storage than expected, as well as acres intended for planting of wheat at a mere 55.9 million acres, 1.5 million below the average pre-report trade guess, relatively minor differences.

Even with all the histrionics, the trend for wheat prices remains channel-bound. The key will be when that channel breaks. If Chicago can bust above $7.17 or so in the September futures and stay there for a couple of sessions, we will have a new positive pattern.

For a wheat business person, a 50-cent move in the price of wheat may represent most of the profit margin for a year's work. This is why " wheat marketing" is such a daily discussion over coffee among the wheat producers. We hear complaints, but in the end that group is here to stay and they are just as important on the upside as on the downside. Market excesses are self-correcting. If a fund has enough cash to afford pushing the whole market up by heavy buying, in order to take a profit out they have to sell all of that position eventually, and that runs the price right back down again for little or no net gain. Most fund managers know this.

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.