Wheat prices in Chicago have just touched their highest point since mid-August. Tuesday’s session closed up a dime, now at plus 63 cents in 22 trading sessions.

Clearly the fact that U.S. wheat is far over-priced into many export markets is not the driving factor. The underlying strength has had more to do with shifting positions held by large trading funds, now short-sold just 37,006 contracts of wheat in Chicago versus 55,151 in the week of 9-11.

As the funds complete their “cover” (buy back) of these positions as they eventually must, the wheat market will seek other factors, and export weakness bids fair to dominate once again.

The crude oil and silver markets are both providing some background support this week, with oil up to its highest trading price since the end of July, pressing the $50-per-barrel mark. Silver jumped from $14.50 per troy ounce to touch $16.00 on Tuesday, the highest since the end of June.

Chicago wheat has achieved a re-tracement of 38% percent of the previous move down from the late June high point. The 50% line (historically frequently seen bounce target) is at $5.39½, 10-12 cents above Tuesday’s close.

These price levels are derived from the “golden” ratio made famous by the mathematician Fibonacci in 1202. They are found by many market observers to be useful for measuring cyclical price behavior.

The wheat price move up since early September is getting “mature”, and there are few fundamentally supportive factors. The risk of buying now is rising quickly. The next significant trade is more likely to be on a downward move.

Trading down through the key psychological point of $5.00 in Chicago December futures will attract attention and invigorate the sellers. The warning will come on a slip below last Monday’s low of $5.08.

Interesting note for producers: According to a Tuesday release by ICIS Pricing, [Independent Chemical Information Service] a business unit of Reed Business Information, “The outlook for the ammonia, urea and phosphates markets has darkened recently for some major manufacturers as prices have adopted a downward trajectory or remained static because of concern over the health of the global economy, particularly China.”

Longer-term factor: The European Union continues in a slow-motion crisis. The tumbling domino-style prospect of withdrawal from the E.U. by a number of members includes Great Britain, expected to vote before the end of 2017 in a referendum on remaining as a member.

For the wheat market, the prospect of a drastic re-configuration of the E.U. is indirect and mostly currency related. Disruption in global banking would be featured. Several major European banks would suffer very large write-downs if Euro-zone debt paper were to be marked to present values, negatively affecting commodity prices in general.

Fear and loathing in the E.U. has lead and will likely to continue to lead to a very strong U.S. dollar. For U.S. exporters of wheat, the effect is negative. U.S. wheat is already priced well above other sources into the large markets in the Middle East. E.U. is a net seller of wheat which would become quite cheap in the event of a shift back toward national currencies. This factor is large and slow-moving. The markets will reflect the rumor long before the fact.

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.