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Rich Nelson: USDA Report watch

01/07/2011 @ 4:33pm

The wheat market seems to have fundamental support. The wheat sold off today on index rebalancing and profit taking. The profit taking seems to be coming after the winter holidays instead of the end of the year profit taking that was expected. The March Chicago dropped 1.9% today. It is estimated that the funds sold 8,000 contracts today with 4,000 of these contracts being attributed to index rebalancing. For the week, March Wheat was down 22 1/4. This was the first weekly decline since the week ended Dec 12, 2010. 

On the export front, Egypt is seeking 55,000 tonnes US soft white wheat, 60,000 tonnes of soft/milling wheat, 55,000 tonnes US Hard red winter wheat and 60,000 tonnes of hard wheat. 

The weather is turning better for the Australian wheat harvest to finish up. There is snow in the forecast this weekend for the plains and will give a blanket of isolation from the bitter cold on the way for the next week. It looks like the cold for the Midwest will not be cold enough to damage the soft red wheat. The temp will need to be watched to make sure they do not fall lower than projected. 

Average guesses for next week’s report are for U.S. ending stocks to be at 842 million bushels. Global stocks are projected to come in at 174.607 million tonnes. Quarterly stocks, as of Dec. 1st, are seen at 1.937 billion bushel.  Winter wheat acreage is estimated to come in at 41.219 million. 

Direction: The March Chicago Wheat closed just short of the breakout point this week. A close above 811 is needed to signal a breakout on the March Contract. If we get a close over 811 we would look for the markets to test the August 6th high of 864 1/4. We anticipate more choppy sideways trade the next few days as the markets deals with index fund rebalancing and position squaring before Wednesdays report...

 

Trade Recommendation:

·       (01/04) Buy 1 March Chicago wheat 750, risk 735, objective 864.

·       (01/05) Buy 1 March Chicago wheat 812 buy stop, risk 794, objective 864

 

There is a risk of loss when trading futures and options contracts. 

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