CROPS

Better than expected bushel-per-acre yields are being reported for the US wheat harvest, as of this week. And harvest is very close to halfway completed in the US.

The USDA says the 18 states that represent nearly 90% of the wheat produced in this country are normally at 52% of harvest by this week each year. We are just a tad behind normal and the Pacific Northwest states, all three on the top-18 list, have yet to turn a header, although with the high temperatures of late, this will change very soon.

Harvest at the halfway mark gives the wheat futures mar- ket enough data to build in an assumption of crop size. The risk of mis-judging the amount of wheat potentially available is much smaller now than just a few weeks ago, so the weight of the “harvest factor” declines in the calculus of price. In the mind of the living-breathing, organic creature that is the futures market, the harvest is “done.”

Now the focus is export sales and the movement of cash wheat out of producer hands into the marketing channels. We will play this psychological game well into the fall plant- ing season. Handlers, elevator operators and shippers do not worry about price trends much, except that when prices are strong, it is a bit easier to capture a margin between the pur- chase and sale of wheat.When prices are weak, it becomes necessary to squeeze down the margins sometimes to keep the wheat flowing from farm to market.

The price environment is setting up for seasonal lows. Commercial traders, according to the CFTC weekly reports of various categories of traders in the market, are now holding significant long (purchased) positions in the futures market, while large speculative funds are holding the opposite num- ber in short (sold) positions. Commercials use long futures to protect their sales commitments to end-users before they actually purchase physical wheat. As the season progresses and they are able to acquire cash wheat to load barges and vessels, they sell off the protective futures positions.

This group does not care about the trend and they do not speculate. Their trading position is a function of risk manage- ment only. Usually when the commercial firms are selling futures, prices are rising, a counter-intuitive fact. The setup today, with commercials as a class of traders net long 48,000 contracts in Chicago, is for a potential move upward later. For now, the market does not have to work hard to pull some wheat out of the farmer’s hands, with harvest bills coming due and previous commitments being filled.

The defined price trend remainsflat to lower for wheat, now trading $2.91 lower than it was this time last year. The Chicago price for wheat, about $6.56 per bushel, is nearing an important level at which in the past there have been many willing buyers. Pacific Northwest white wheat prices are still holding for a resolution of the “Monsanto Issue” so that Japan and Korea return to buying white wheat again. There is room for more downside ($6.20 Chicago?), but the seeds of an upside story are being planted.

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.