CROPS

Last July, the bell- wether Chicago wheat contract was trading above $9.40 per bushel. Harvest was nearly completed in the mid-west and southeast. It was a small- er harvest than hoped, which pushed the price of wheat to a four-year high. Pacific Northwest white wheat bids were pushing $9 in mid July, even though the crop in this region was much better rela- tive to mid-western results.

Since July, the price has ground toward lower levels. Chicago is at $7.54 ($1.50 lower) and Portland white wheat bids are around $8.41 (60 cents lower). From last fall to today, prices have been rattling back and forth in a channel that spans about 80 cents from highs to lows. In the big picture, the wheat market price charts show a very gradual upward series of higher lows that measure from the lows way back in 2005. Today the market is approaching a period that would normally produce an average seasonal low. There is probably 50 cents of risk to the downside for wheat owners, but the upside po- tential is larger, more like one dollar.

In the background, the severe drought in wide parts of the US wheat and corn belts has not been eliminated, even though Old Man Win- ter is pushing some storms into the region. When the winter wheat crop went into dormancy last fall, crop con- dition ratings were the worst on record; poor-to-very-poor condition at 61% in Oklaho- ma, 31% in Kansas and 49% in Nebraska. If the drought is not eased by additional winter moisture, this will be a market factor this spring (new crop winter wheat will begin to be harvested in mid- May, about four months out).

US wheat is competitive- ly priced in global markets due to the decline in the last few weeks, but the demand for additional wheat pur- chases has been slower than anticipated by the trade. The market has been hanging its hat on an expected surge of wheat buying that was sup- posed to have emerged when Russia and other Northern European export sources ran out of exportable supplies. So far it just hasn't happened, likely due at least in part to a soft global economic setup.

This Friday's USDA report lineup will include "Stocks in All Positions", "Supply and Demand Ta- bles", and "Planted Acres in Wheat". Friday morning is likely to display some intense price action if the trade's estimates are shown to be inaccurate. It is likely that this report will set the market tone for the price ac- tion over the next couple of months.

The price trend for wheat is downward today, but the length of the move down from last July should be considered mature, making a bounce of some magnitude likely. But the setup is not for higher prices yet.

Information and opinions contained herein come from sources believed to be reliable, but are not guar- anteed 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 ac- count. All funds committed should be risk capital.