CROPS

Just like trying to put a vehicle in gear and drive with the parking brake on, the wheat market is laboring way too hard in its attempt to clear a near-term objective to the upside. It is clear that the supply/demand for US wheat shows the tightest balance in the last five years, but that is not the factor it once was.

Production of wheat outside of the US has increased steadily over the last decade, reducing the price impact of our "local" all-wheat production on global markets. That fact, along with a better-than-expected corn production year, is the parking brake.

U.S. wheat is expensive in the export markets relative to other active sellers all over the northern hemisphere, and U.S. domestic animal feeding operations are quite willing to switch back toward using corn instead of the now much more expensive wheat (December Chicago wheat contracts are trading more than $2.00 per bushel above December corn prices, a spread seen only a handful of years since the 1960's).

As of the close Tuesday, Chicago wheat has moved up only 20-odd cents from recent life of contract lows. In the most recent upward attempt, it took seven trading sessions to span that 20-cent range. Buyers are present and active, but may be growing short-term exhausted. If the December wheat price fails to hold above the mid-$6.30's for a couple of sessions, the potential for a climax of selling to kick into something like a 30-cent run to new lows becomes much stronger.

On the upside, whenever the wheat market achieves an uninterrupted 13-month move in any direction, it becomes compelling to expect at a retracement-bounce of at least half of that move within several months of the lows once they are identified.

The present market composition, with commercial firms heavily long-purchased (74,055 contracts net long) and the big speculative traders holding the opposite side with 55,828 contracts sold short, virtually guarantees a return toward more centralnormal numbers. That means heavy money moving, as the Specs buy to cover short sales and the Com- mercials sell off into the demand. A measly $1.35 per bushel up from the lows to around $7.90 per bushel is not much to ask in that light. That is halfway back to the old highs of mid- 2012 to present lows.

Timing on all of the above is fuzzy, and it is dangerous to mix your time-frames when analyzing markets. Short- term looks really dismal. Long-term looks better, but there is no catalyst visible to drive wheat upward and wake up the now-complacent speculative traders. The commercials don't care which way the market goes. They do not speculate, but merely balance cash commitments using futures as a hedge.

The longer a market stays in a given range, the more com- pelling the eventual break-out becomes. Stay tuned for a call to action on a break to either side of the range.

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.