CROPS

I f you find yourself waking down the centerline of a busy street, it is very useful to be aware of where the cars and trucks are (in both directions). And every once in a while it is good to look a couple of blocks ahead to be prepared for that big semi.

For wheat owners and traders, it is an occupational haz- ard to lose perspective; to become caught up in the smaller, day-to-day information and action flow and to forget that the price range of the last several months is only a very small part of the whole picture. The market always tells us the whole story, we just have to be listening to be able to learn and grow. The large factors are usually very slow to move and it is easy to become distracted by that speedy little sports car weaving in and out of traffic (daily market action and short- term charts), causing us to miss the bus coming just behind us (global supply/demand shifts).

We have just completed a big harvest in the northern hemisphere, and harvest in the southern half of the globe is well underway. There were no major crop problems for any grain in 2013, and there was record production in US corn, creating a strong swell in grain supplies in the global markets.

Demand for wheat and other grains had been increasing as ethanol inside and strong economic growth outside of the US created more ability to consume. That pace is moderating and slowing the growth of demand - right into the teeth of this big bulge in production. The effects of this "bus" coming down the street may only be temporary, as in a year or two, and we already have anticipated some of the effects, but the price background for wheat today is not supportive.

Current price levels for Chicago wheat are at their lowest since June of 2012, with a downward bias. The "Contrarian" instinct runs strongly in many of us, so we automatically see a 17-month-old low as a really good place to begin to antici- pate a buying opportunity, and so it is. But a trend as long and consistent as the one in place today does not end easily. The risk of continued downward pressure has not decreased yet.

How low is low? Buying now is a lot less risky than it was just a couple of weeks ago in the first days of December, as we have seen the March Chicago contract drop 40 cents in that time. The problem is that at that point it looked as though the longer downtrend was just about over and the lows around $6.40 would be sustained once again as in the past. Not so, as we now are under $6.20. This is the little sports car.

A "small" price rally in this environment is likely to be something like 20 to 30 cents, pushing Chicago March con- tracts back up in the $6.40 to $6.50 range. This kind of move does not change the definition much and should not be taken as a change of market tone yet. It will probably take until spring for weather or economics to create a strong enough factor to allow more substantive moves. Meanwhile the con- trarians should probably take the bus to school.

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 options, it is possible to lose more than the full value of your account. All funds com- mitted should be risk capital.