Gary Hofer: Market Bullets

Last Friday Chicago wheat May futures closed at $6.59 per bushel. By the close of Tuesday's trading session, the price of wheat had moved up 42 cents, a move that does not completely reverse the downtrend, but decisively takes back all but about 6 cents of the downward move that started back on March 20. There are few traders willing to stand in front of such a powerful locomotive, which is one of the reasons that moves like this one are so violent. The sellers just hide.

Russian President Alexander Putin has apparently decided that the Ukraine would be a nice piece to set beside the Crimean Peninsula. Perhaps it is for him a "manifest destiny." Of course the US administration is not going to just sit around without comment, so economic sanctions and moral suasion practiced on the EU neighbors will ensue, although neither seems likely to do more than muddy the waters.

In between all of these actions there is a rising potential for at least a temporary interruption of wheat and corn export activities from Ukrainian ports, as well as difficulty completing regular spring corn planting and other farm operations that depend on stable economics. Global wheat and corn buyers that would have been working with Ukrainian grain sellers are likely to seek alternate sources, including the US.

Weather is also playing its normal spring role. Cold temperatures across wide areas of US wheat production threaten the tender wheat plants in critical reproductive stages of growth. According to USDA reports on April 15th, 80% of Oklahoma's wheat was jointing, (with the newly developing wheat head now vulnerable to damage from frost or other hazards) along with 31% in Kansas and 6% in Colorado. In Texas, 16% of the wheat is headed. Temperatures were reported at 32°F or below throughout Oklahoma and western Texas, with many areas below 25°F.

Winter wheat in the US is rated only 35% good to excellent. The next week or two will be critical and moisture is the key to recovering from frost. Harvest time is not far away now for far southern growers. Most years by late may, only 5-6 weeks away, wheat harvest is rolling. It is true that winter wheat is capable of recovering from harsh, killing frost early in the season.

In 1997 after a particularly severe freeze, many agronomists and other experts declared catastrophic losses for the wheat crop in many mid-Western states, only to see a record crop harvested that year. Still, conditions are far from optimal for a lot of wheat acres, making less future wheat probable for the moment. Since the markets operate and adjust mostly on anticipation of the impact of various factors and not so much on the present, this is a price positive.

If we add Putin's Ukraine gambit, cold spring weather and ideas that the recent 30-day downward move was a normal "corrective retracement" of a larger upward trend, there is enough emotion to drive wheat prices upward for a while. A strict trend measurement of July wheat charts requires a break above the $7.16 (highest previous close) to $7.25 (highest intra-day high) range to confirm new upward trend lines. A failure to break above this range would have long legs.

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.