The Times - Serving Waitsburg, Dayton and the Touchet Valley

The general trend in wheat prices, even with $2 per bushel swings, has been negative for nine months since February 2011, from highs at or above $8.67 per bushel. High points in the pattern have been lower than previous highs, and each low has been lower than the previous (book definition of a downtrend). As of Monday, Dec. 19, the leading Chicago wheat contract was trading at $5.84, $2.83 cents lower than the February 2011 high and a new low dating back to July 2010. There was no surprise in this, as the supply of wheat in the world has been steadily increasing. The northern hemisphere (U.S., Northern Europe/ Black Sea, China) put up a very healthy crop last fall, and the southern hemisphere (Australia, Argentina) is expecting to show a large harvest as well, albeit with some quality issues. In the latest USDA forecast, US export sales of wheat are expected to total 18.2% of world wheat exports, the lowest market share on record except for 2009-10 at 17.6%. The 9-month trend is well justified and may continue into spring.

The positive side is that in a seasonal market like wheat when a trend has been in place for nine months, most of the downside price risk is often already accounted for and built in. There are "technical indicators" that have moved into extreme low ranges, suggesting exhaustion of the forces that have been pushing prices lower. Recent CFTC Commitment of Traders reports show commercial firms as a class holding historically significant "long" (bought) positions, a reliable past indicator of price lows. In another column of that same report, the large trading funds are shown holding very heavy "short" (sold) positions. This mix has always been a recipe for pending price increases, although the timing of this broad and slow-moving indicator still easily allows for a later spring low. The previous low for Chicago wheat in June of 2010 was $4.25, $1.50 below today's level.

Factors dominating the wheat market:

The large world supply overhangs the price and there is no pressure on end-users to accelerate purchases. Buyers are relaxed and picky. The world's financial woes are a drag against dramatic wheat price increases, as government buying agencies are being particularly cautious. Normally large Middle-Eastern buying is much weaker, due to unrest. There has been mud on Australian combine cab windows at harvest, so crop quality is in question, but not quantity. Argentina is being aggressive with wheat sales.

Best idea: Do not delay planned sales of cash wheat (downtrend intact, with no identifiable low showing yet), but prepare to cover in the event of a new upward trend formation that is technically and seasonally due.

Gary Hofer can be reached at 509-337-8417.

The information and opinions contained herein comes 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. Past performance is not necessarily indicative of future results.