Pop a top, again
The whole commodity world is watching with amazement as Minneapolis HRS wheat is blowing the top off that market, moving limit up the past 9 days almost every day.
The March futures have rallied $2.56 in just 9 days (5 years ago, that was the cash bid for the same commodity!), just short of full limit moves every day. In that time span, it has been limit down a few days during the trading day, only to finish limit higher anyway. The relationship to the new crop market isn't defined, either, as the new crop month has lost as much as 60c to the March contract in a single day as the March closes limit up some days, with new crop limit down ON THE SAME DAY!
Normally, one would expect such movement in a market just before new crop supplies are delivered, but actually in the Mnpls HRS we are 6 months removed from harvest in the March contract, as not until August will new crop supplies be delivered to the marketplace. Yet, the March Mnpls contract is blowing the top off this marketplace - 6 months before new crop contracts are in delivery. One has to wonder what will happen to the May contract once it becomes the lead month??? And what do we do in trading the next 6 months?
Farmers who still have HRS wheat in their bins are listening daily to the market updates on radios, and its fun to calculate how much money was made today for that gold mine sitting in the family farm grain bin. But selling is not in today's vocabulary, as we are just starting to have fun! Farmer selling has dried up after 18 months of nearly steady gains, and farmer 'hoarding' has put a whole new definition on the marketplace. What little, tight stocks are left in this market are extremely hard to try to buy, and one wonders if the last bit of grain will ever get sold in the marketplace.
Clearly, we are rewriting history books this moment, and the whole world is watching with amazement as we are reestablishing our understanding of what markets can do when supplies become short. The combination of fund buying with little or no farmer selling is putting new definitions of what grain markets can do. A food grain like wheat is not something wealthy countries are accustomed to do without, and we are finding out how valuable our food commodities are to users who like to eat them.
While this has been encouraging, the last few dollars of wheat price are also something that can be quickly erased once grain supplies start to move again, or once growers have a chance to produce for that high priced market. The key now is to decide when enough is enough. That gets difficult, however, in a marketplace with no clearly established resistance. HRS wheat prices have never traded at these levels, in fact, the previous high was roughly half of what the wheat market is trading today. The next price target for wheat is the inflation adjusted highs, but most people's teeth fall out when they realize the inflation adjusted highs in wheat are in the mid-$20's for price. At this point, though, after watching HRS wheat rally $2.50 in 9 days, one can imagine a scenario where prices could hit those levels by the new crop harvest which is nearly 5 months away.