Gary Hofer: Market Bullets

Most of the juice has been squeezed out of the recent two-week downward move for wheat prices. Only two weeks ago the Chicago July wheat futures price was trading 70 cents per bushel higher than present. In today's hyperbolic world, some would call that a "collapse", but the truth is that this kind of action for wheat is normal; not unusual at all.

There was a day when a 70-cent price shift might have changed the world for many a wheat producer, but no more. Now it is an "opportunity." All the price did in the last two weeks was return to levels that have proven to be "support" in the last year of trading. Support being the price that seems to stimulate demand for wheat from a large enough group of buyers to halt further price declines.

The range that triggers this apparent bargain shopping is between $6.50 and $6.80 per bushel, and seems reliable at this point. Even a departure from this game trail would be useful information, as a change in behavior like a failure to hold above the established pattern line would strongly suggest new fundamental drivers entering the wheat market

The dominant factors today are nearing the later phases in their influence. Weather, while always a market force for wheat, ceases to be dominant at the end of spring as the crop passes through the sensitive reproductive stages and begins to ripen. Unless a very large and increasingly unlikely weather pattern emerges soon, the northern hemisphere is bringing quite a bit of wheat to the bin this fall. The same holds even more emphatically for soybeans, and corn may reach a 15- year record large global supply balance according to the latest USDA reports.

In the balance, the Chicago wheat market has cut the downside price risk by 70 cents from the highs of May 7, around $7.40. From this point ($6.70 on Tuesday) if available supplies overwhelm the buyers we have seen at $6.60 down to $6.50 or so, the market can see the lows of last year way back at $5.60. On the other hand, craziness from the Ukraine (requiring yet another deviation from established pattern) or some other "dis-continuous event" could push prices back upward toward $7.40 again.

The US dollar is firm, energy markets are stable, fear and loathing on Wall Street is only a dull rumblehellip;the environment seems unlikely to chase "big spec" money away from other investments into grains. The balance of factors in the wheat market continues to favor the downside, even if the next week or so displays a recovery effort from the recent swift downward shot.

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.