Wheat Looks Ready to Rebound
By Brian Henry, Archer Financial Services

Price action in the wheat markets continue to be heavily influenced by the strengths or weaknesses of the US dollar. While trade volume has been relatively low, the funds remain the most influential component involved in the trade.  

The fundamentals of the wheat market continue to point to lower prices. However, the market just does not appear ready to work down to lower more competitive prices at this point. Oversold market conditions and the prospect of trend following funds covering a portion of the large net short position, have reduced the aggressiveness of the sellers at least for the time being.

Despite the fundamentals surrounding the market, bulls have reason be optimistic as the market has not traded down to the late September/early October lows. Even though wheat settled lower on Thursday, the price action was positive if you consider the sharply higher dollar. Even as the dollar rallies, the selling pool appears to dry up. It appears the market is poised to correct the oversold conditions.

I believe the front month contracts can work back up to the recent highs of 526 in Chicago and KC and 532 in Mpls.  The market can attain these levels if a modest amount of short covering surfaces. All three markets are currently trading below their 20 day moving averages. The 20 day moving averages of 498 in Chicago May, 504 in KC May and 516 in Mpls May will be the first obstacle. Established trade above these levels should trigger enough short covering to test the old highs. I am not sure a weaker dollar is required to accomplish this, but I know that the dollar continuing to trade sharply higher greatly diminishes the possibility of this correction taking place. Ultimately, a rally of this nature would need to be sold, but I would be very careful pressing the market near these levels.

Potentially bullish items that the market is paying attention to include the weather and wet conditions in the Northern plains and the colder weather pattern expected in the northern areas of the winter wheat belt. I am not concerned about either of these issues at this point. I may be more concerned if the domestic carry was not approaching 1 billion bushels. Delays in spring wheat plantings are possible, but we are not in a crucial time period yet. I am more concerned about the corn that stood in the field over the winter and the fact that getting that land back in shape to plant is in question. Finally, late planting in the eastern North Dakota and western Minnesota could result in increased wheat acres as spring wheat planted before June 15th is insurable. Freezing and thawing of winter wheat could cause some light damage. I do not believe it would extensive. I do not believe it will matter unless it happens to you.  

For more information about this article, please contact Brian Henry at 1.877.690.7303 or send an email to brian.henry@archerfinancials.com .     


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