Gary Hofer: MARKET BULLETS

Chicago wheat just put in a positive price week, the first since August 5-6-7-8. December futures jumped from $4.65 to $5.01, 36 cents in six trading sessions.

A two month old trend-line was broken last Friday when the “Dec” closed decisively over $4.85. So now what?

In order to confirm a new upward price bias, we have to build a case for higher prices based on more than just a pattern on the chart. And that, oh best beloved, is a tale yet to be told.

Some of the enthusiasm for wheat came in sympathy with corn, which received a boost from last Friday’s USDA Supply/Demand Report showing a production cut that surprised the trade enough to push prices up 24 cents per bushel, the highest level for corn in a month.

Wheat’s numbers in the report showed larger ending stocks for both U.S. and the world, fundamentally negative but not a surprise for most active observers. The prices offered to the global export market for U.S. origin wheat remain higher than other sources, so the market is being driven by factors other than simple export demand.

The technical, chart-based analysis for Chicago December wheat had been focused on a downside target between $4.50 and $4.60. The lowest that contract was able to trade in the last week was $4.63. If the trend-line changes to positive for the balance of the season, there will be little debate about whether the goal was achieved.

For the moment, the door is still open on the downside, as the key driver of the wheat futures price has been cumulative selling by the large trading funds, amassing a total of just over 55,000 contracts short-sold as of the last weekly Commodity Futures Trading Commission reports. This is not historically extreme, but it has reached levels that allow beginning anticipation of the next upward move when the funds eventually have to buy back all those short sales.

The pressure on wheat owners is still negative, even with the break-out to the upside. A big negative trend move like that of the last two-plus months rarely ends with a simple life-of-contract low and then up. There is nearly always some consolidation, back and forth trading to test the low again after a bounce.

Then if the low is validated by at least one failed attempt to set a new low (preferably two or more), the confidence of the trade in identifying the seasonally appropriate low point rises. The news items that are often used to explain the moves typically come after the actual event of the low trade point.

The risk of owning wheat is less than it was back in late June at $1.00 per bushel higher. We still do not have a mandate or combination of factors to rest our elbows on as we sit at the wheat buyers table, but as we pass the corn around, the bowl is not as full as we expected it to be, so maybe we will take an extra slice of the wheat bread instead. Bon Appetite!

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.