CROPS

Chicago wheat futures prices have declined one dollar per bushel since January 22, from eight dollars down to seven. During the same period, Portland-delivered white wheat, our neighborhood specialty, has declined from about $8.62 to $8.45 - only 17 cents.

The divergence between the two markets is more dramatic than normal, and can be attributed to a couple of factors. The Chicago soft red winter wheat market is much larger and more liquid than the white wheat market, making it attractive to larger entities such as large commercial firms that need to lay off risk (hedge) and large speculative trading funds that must be able to move into and out of a market without disruption.

The influence of Chicago is felt in every global wheat market, even though there are many locations and varieties of wheat trading every day. Chicago still represents a central wheat price discovery system for everyone.

White wheat is a relatively small slice of the global pic- ture, with a narrowly defined demand coming mostly from the Pacific Rim, i.e. Japan and some Middle Easterners, like Egypt. These sources of demand are relatively "inelastic" in their white wheat purchasing patterns, as that variety fits strong preferences in their cultures.

Chicago wheat has been heavily influenced this fall and winter by the drought in the middle-western wheat production areas of the US, and by a generalized move by the big specs from a massive net long (bought) position of 54,000 contracts last July/August to a new net short (sold) position of about 31,000 contracts in the last week or so - a net sale of 85,000 contracts representing some 425,000,000 bushels of trading!

The opposite side of most of this movement has been bought by the "commercials", or large firms that are in the business of handling, processing or feeding grains. The changes in net positions are large, but not unusual in pattern. The question is now "what next?"

As the commercials are now reaching net long positions (48,146 contracts as of last week) and the big speculative funds are now net short about 31,000 contracts, the next seri- ous price behavior pattern shift is likely to be at least stable and maybe generally positive.

This kind of analysis is definitely not precise, but it is very reliable over longer periods of time. It is not useful for mak- ing day-to-day decisions, or even week-to-week, but having a clear idea of the large market background factors that exert a glacier-like force on trends can help with long-term planning for sales or purchases.

In the short run, the wheat market is seeking a low. Chi- cago is at a point last seen last June on the way up to last summer's highs. The upward move of the spring of 2012 has now been more than 61.8% retraced, a Fibonacci mathemat- ics fulfillment that allows new patterns to emerge. The wheat price trend is still defined as negative, based on Chicago nearby wheat futures patterns.

Information and opinions contained herein come from sources believed to be reli- able, but are not guaranteed as to accuracy or complete- ness. The risk of loss in trad- ing futures and/or options is substantial. Each investor must consider whether this is a suitable investment. When trading futures and/or op- tions, it is possible to lose more than the full value of your account. All funds com- mitted should be risk capital.