CROPS

One really nice thing about trying to understand the wheat market compared to bonds, stocks or other financial markets is the reality factor. Wheat is real stuff, made from sunshine, water, dirt and a lot of hard work. There is only a given amount of wheat produced and consumed in a year, with the same ancient variables at work; mostly weather, with a little influence from other markets thrown in, but the biggest variable, often even larger than weather, is government.

In the last few weeks, we have had quite a show to watch in Washington, D.C. There is no market that is not affected by political theatre at the level we have been seeing, and there is more to come. For now, there is an intermission, while the players review current statements, old tomatoes, cabbages, and other audience reactions in order to try to script the next act. In this quiet period, wheat traders have a chance to see the global wheat market in a less anxious mood.

Our global human family has many conflicts, disagree- ments and dysfunctions, but we do have some things in common. People have to eat. Frequently. And wheat is among the most popular food items in the worldhellip;the "staff of life". The supply of wheat shifts more often than the demand for wheat, as the demand is "inelastic" (a fancy term for "not very flexible"). When Iran or Syria needs wheat they go out and buy from producers somewhere. Even if they do not purchase from the U.S. directly, they are taking wheat out of the global supply bin (Ukraine?), making less available to another buyer.

When Argentina has a drought-reduced crop, as it ap- pears they will this season (wheat harvest in Argentina is December/January), Brazil cannot buy enough from their southern neighbor to fill all their needs, so they turn to an- other source like the U.S. China is the 800 pound gorilla in this game. They have been unusually aggressive buyers of U.S. wheat this year, and with the possibly short southern hemisphere crop looming, it suggests that northern hemi- sphere wheat will be tapped even more this winter, a price positive factor.

We do not yet have a big fundamental wheat price story to tell just yet, but the trend line for Chicago wheat has turned upward, with the price breaking above the weekly long-term trend line two weeks ago. The long-term chart says there is potential for another dollar upward before the price reaches natural boundaries (willing sellers in the past), something like $8.00, about halfway back to the highs of July 2012.

It is virtually certain that wheat prices will not go directly to this target, but as long as the trend is not seriously broken, this target will be out there. On the downside, a fail- ure to hold above $6.36 Chicago December futures (now 60 cents below current price) would erase the upward target and reset a lower trend line. In the short run, a 30-cent de- cline from current levels would not break the upward bias, even if it makes those who missed the chance to sell earlier a bit queasy. So here is the question: If you have a current up-trend, with active buyers at work, a limited additional production capacity and a for-now economic calm, what is the best action? You have just under 80 days to ponder until the curtain goes up in Washington, D.C. again.

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 trad- ing futures and/or options, it is possible to lose more than the full value of your account. All funds committed should be risk capital.