The Times - Serving Waitsburg, Dayton and the Touchet Valley

One of the occupational hazards of being a wheat producer or landlord is that most of the time spent on analyzing wheat prices is focused on determination of "why the price should go UP." The problem is a kind of blindness to reasons why the price should go DOWN.

The psychological basis for ignoring negatives is obvious, but it can cause a wheat marketer or trader to wait too long to sell. Then, often near the lows for the year, emphasis shifts to "damage control" instead of optimization. That period is at hand.

Wheat prices are suffer- ing from "What, me worry?" syndrome among global and domestic wheat buy- ers, especially if they are those who may use wheat as animal feed. Corn is actually the preferred feedstock when it is available, as it is not as "hot" (high protein) as wheat, making it simpler to feed.

Corn prices have pretty much collapsed since last August, with a massive crop in the bin from the US and decent growing conditions in the southern hemisphere now heading into corn har- vest. Another very heavy weight on the price of corn is coming from Chinese rejection of many millions of bushels purchased and already shipped from the US. The Chinese are turning the cargoes away as they are said to contain a strain of GMO corn known as "MIR162", a variety cleared for production and consumption in the US, Japan, Philippines, European Union, Argentina and elsewhere, but not in China. These cargoes are then being sold, under some price duress into other mostly Asian destinations, filling the market with cheap corn.

MIR162 was developed a few years ago in the by Syngenta Biotechnology, Inc., a multi-national biotech firm, to resist "lepidopteran" insects without the use of insecticides, especially the corn borer larvae, a very destructive pest. Putting all of that alongside the pending decision by the DOE to potentially reduce the amount of mandated ethanol in gaso- line, and you have a recipe for lower corn prices through the winter. Wheat is a fol- lower in this story, but has no fundamental problem to solve that involves rationing by price. US wheat would be priced competitively into many global markets, but has not been offered aggres- sively, as shipping capacity has been too expensive. The market has a lazy tone, and most recent short-term rallies have lacked the power to move up more than a few cents. Potential wheat buyers have been well rewarded for being slow for many months, but that pattern tends to build up a residual effect of "every- one on one side of the ship". There are large positions built up in the market by two well-followed groups: The "large speculative" fund traders on the short-sold side, and the "Commercial" firms on the long-bought side.

Historically when these two categories of futures traders are so far apart and carrying such large posi- tions, it leads to "corrective" price moves that can be significant - in this case po- tentially positive. What we have here, though, is a fail- ure to communicate (Cool Hand)hellip;we must have a fun- damental spark to ignite the overgrowth, but the weather is cold and wet, definitely not fire season. So we wait. Information and opinions contained herein come from sources believed to be reli- able, but are not guaranteed as to accuracy or complete- ness. The risk of loss in trad- ing 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 com- mitted should be risk capital.