By Gary Hofer
The Times 

Gary Hofer: MARKET BULLETS

One-Day Wonders

 


The wheat market as revealed by Chicago soft red winter futures is a one-day wonder. Since mid-May, all of the significant price changes have come in single sessions. On May 14, July contracts opened at $4.81½ and closed 33 cents higher at $5.14½. This week, following the three-day weekend, wheat opened at $5.15¼ and closed 22 cents lower at $4.92¾. Every other session for the month has been quiet and small.

This is sufficient to exasperate short-term traders, although the profession of trading wheat is a study in exasperation anyway.

The trend? The price on Tuesday settled on the central statistical regression line that reaches back to mid-January like a grackle on a telephone wire (sorry about the anachronism – there may be some who do not know what a “telephone wire” is). Using any description, the wheat market is not venturing far from a nearly flat trend line that has been confirmed again and again since the end of January.

The principal short-term factor appears to be a very strong U.S. Dollar, another factor that makes U.S. wheat exports less competitive. With the re-emergence of Greece and Spain as economic problem children in the European Union, once again capital flight pushes money into the U.S. currency, even as interest rates on Treasury bonds and notes have been steady to slightly higher for the last couple of weeks after previously trending lower into early May from mid-April.

We are about to enter harvest in the northern hemisphere and there is a decent crop coming along. Global wheat supply is ahead of demand, and there is plenty of corn available as well. This fundamental background is unlikely to shift in a meaningful way for the balance of the year, which leaves wheat to trade in ranges and dependent on short-term news for direction.

The only factor that hints at rally potential is the market structure revealed by the Commodity Futures Trading Commission’s (CFTC) Commitment of Traders (COT) reports showing commercial firms holding very large net long (purchased) positions and large speculative funds on the opposite side with large net short (sold) positions. This configuration is traditionally a pattern leading to a price increase and/or trend change, as the spec traders will exit their sold positions by buying them back, while the commercials reduce their futures positions as they buy physical wheat into and through harvest.

The trading funds react more energetically than the commercials when something comes along to spark a rally. At present there is little to move them to action. The 50-cent rally we just witnessed from June 13th through the 18th was sponsored by the traders’ short-covering based on weather reports, but the phenomenon was short-lived. For now, the reported accumulated positions are merely serving to keep wheat prices from moving lower more rapidly.

The acreage-weighted winter wheat crop condition in the Pacific Northwest gained about one percent over the previous week’s USDA progress report, with 45.5% of the crop in good-to-excellent condition. Oregon slipped a couple of percent back to 32%, but improvements in both Idaho (64%) and Washington (40%) balanced the total. This time last year the overall US wheat crop rated 30% good to excellent condition, versus 45% this year.

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.

 

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