CROPS

The wheat futures market as an entity exists to serve one ultimate purpose: to constantly re-discover the balancing point between real supply and demand going forward - that point being the daily/hourly/tick-by-tick price. After all the noise and emotion, along with plenty of "information" that may or may not be relevant, in a downward trend- ing price pattern, the market is seeking to lower the price for wheat enough to cause would-be buyers to step forward and purchase. On the other side of the coin, an upward market is attempting to draw sellers to the window.

The wheat market over the last few months has been adjust- ing to make U.S. wheat supplies more competitive, which is to say cheaper. Comparing the most recent trend pattern to "nor- mal" history, the move seems about mature in terms of both du- ration and amount. Many traditional chart targets have already been achieved or exceeded and there is little new fundamental information about the crop of 2012 to be gained. The attention of the market is shifting toward the next round of production in the northern hemisphere, with harvest starting in the southern US in early May, about 7-8 weeks away.

Recent winter weather has allowed producers in the U.S. mid-western and southeastern wheat belts to increase expecta- tions for wheat crops, but there are still problems in the western half of the plains. This is quite well-known and well-digested at this point. We will still hear about it as winter dormant crops awaken, but as a factor it is built in already. If the weather pat- tern this spring is adverse, we will add some risk-factor price later.

For now the price of wheat is quietly working out a seasonal low. The commercial firms have moved into net long (bought) positions and the large speculative trading funds are holding very large net short (sold) positions, ultimately a recipe for higher prices. Technically the market is set up for a rally in the short term. Last Friday's USDA report was nominally negative for wheat, but ended up being mostly ignored by the trade in the days immediately after the report, a sign of trend exhaus- tion at this point. Without larger factors with which to build a price fire however, any rally may be somewhat limited.

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 in- vestment. When trading futures and/or options, it is possible to lose more than the full value of your account. All funds com- mitted should be risk capital.