Gary Hofer: MARKET BULLETS

It took the Chicago wheat futures market 12 grinding sessions to reach up 44 cents to the high close of Wednesday, Nov. 4 at $5.25, then it peeled backwards 33 cents in a couple of days. All that was accomplished in the week was a confirmation of the range highs back to July.

Can this wheat market ever break out of the sideways pattern that has defined the price since July? It will require something more that we have on the board right now…weather, currency shifts, global peace…

Since we are busy with a trapped market ping-ponging back and forth between highs and lows, analysis becomes simplified. We just set alarms on the highs and lows and wait. Most of the time between testing the boundaries becomes irrelevant, and the tone of the hive is muted.

September’s low price for Chicago soft red winter wheat futures was $4.63, 30 cents below the Nov. 10 session close. That September point was a match for the May low last spring, and before that all the way back to June of 2010.

That is a key low, of which a failure should be a call to action. At present it appears more likely to see this challenge of the lows than of the highs, but that can change quickly, as this market has demonstrated repeatedly.

The high points are clustered tightly around $5.30-$5.31. A significant break-out through this level, i.e. at least a couple of closes, will suggest there is something new entering this market that is not known at present. The market knows all (More than any one person knows, at least). That is why breakouts are called “signals”.

Government statistics, flawed as they sometimes may be, are still the only game in town for most observers and analysts. The effect of report days on grain futures is always to be respected.

The reports on Nov. 10 were pretty much negative in price effect. In recognition of the dismal recent pace of sales, USDA reluctantly chopped 50 million bushels off of overall U.S. wheat exports to put them at 800 million, the smallest export number since the 1971/72 crop year.

While larger corn and soybean crops had been widely expected, USDA numbers surpassed pretty much all pre-report trade estimates. U.S. origin wheat is so much higher than the global price that in many recent tender offers opened by various national entities, no U.S. wheat was even offered.

The price differential between U.S. and French wheat is such that Mexico has been originating wheat from Europe instead of the U.S. Global wheat production is still strong, as ending stocks were lowered 1.2 million tons to 227.3 million, but remain record large.

The market is more than aware of the dismal statistical background, along with strong dollar values, significant global buyers in political disarray, etc. There is a strong hint of a base being built here. Between now and spring emergence from dormancy in the northern hemisphere, the picture and the tone may change dramatically.

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.