CROPS

In spite of the big, $1 per bushel spike in Chicago wheat prices May 15 through 21, the trend for wheat remains in a broad downward slope. It is very tough for wheat to advance directly into the teeth of harvest, even with the weather stories about dryness in Russia and frost on tender young North Dakota hard red spring wheat. We do not yet have the combination of factors that could allow wheat to rise beyond the upper edge of the 15-monthold downward price channel. The market played one of its best positive price cards in the mid-May jump, as the very large short-sold position of "Large Speculative Funds" has largely been covered (bought back), dramatically reducing the potential buying pressure from that source. The funds may continue to buy, taking on an equally large long position, but this is more likely to emerge after harvest has peaked this summer. That reduces the most obvious potential positive factor.

What moved the funds to cover? Maybe the rumblings of larger pending Chinese wheat and corn purchases, along with solid production forecasts from USDA and normal seasonal lows being due. No big surprises here. The excuse was dry weather, but that is normal. The funds have to take profits somewhere, and those large grain end-users, merchandisers and handlers classified by the Commodity Futures Trading Commission as "commercials" normally hedge harvest grain purchases by selling futures at this time of year. Sometimes the speed of such market moves is surprising, but this one had been well discussed in advance. Now is a good time to re-assess the dominant factors to see what may come next.

Marubeni Corp, a very large Japanese company of which "Food Products" is only one of 14 divisions has purchased Gavilon, a large U.S.-based grain, fertilizer and energy company second only to Cargill in the overall capacity to originate grain purchase across the U.S. This $3.6 billion purchase suggests greater Pacific Rim grain purchasing needs and may be a direct result of anticipated Chinese demand growth.

The background of the market, with big banks struggling in Europe and very high bond prices (low interest rates) in the U.S. remains precarious, but stable in the short-run. The "wall of worry" that stock markets must have to rise remains intact. Best gauge to keep a finger on the pulse is the bond market. The first sign of weakness will help identify "the top".

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.