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Is the high in for wheat?

This week's technical picture looks negative for wheat prices as futures broke down, closing below the 50-day moving average on old crop contracts for the first time since May.

A strong bounce with prices trading limit-higher last Friday, the 19th, and then follow-through Monday on news that Russia may impart a tariff above 10% on exportable wheat had prices moving sharply higher. However, on Wednesday, Russia confirmed the 10% tariff would stay in place. This sent prices limit-down for the second consecutive session.

A technical description may help to suggest why a top is likely in place. Wheat prices began a sustained uptrend on the December Chicago contract after bottoming in early April at a low of $4.54.

Prices hovered in a sideways pattern for nearly two months, and then began a slow but steady uptrend in late May as prices moved from near the $5 mark up to the contract and all-time high price of $9.61-3/4 on September 28. This move of over $4.50 indicated the market was vulnerable to a downward correction, if not a collapse. During the rally, fundamental events were price-positive as the market responded to world crop problems, specifically in Europe, India and Australia. While this helped to propel prices higher, it is now old news. The rally spurred a substantial increase in farmer plantings in the U.S. and abroad.

After peaking, prices made a very quick slide, bottoming at $8.10 on October 16. Prices held the 50-day moving average, testing this level the next two sessions before making a limit-higher move on October 19, closing at $8.55-1/2. The next day saw additional follow-through with prices peaking at $8.73.

The overnight trade was as much as 15 cents higher on Tuesday night/Wednesday morning trade, but a failure to open in line with the higher overnight trade sent a signal to traders to exit longs. Prices then sliced down through the 40-day moving average and eventually finished limit-lower. A gap lower on Thursday morning with a limit-lower close, the first below the 50-day moving average since spring, led to a future sell-off.

Technically, the market is vulnerable to an additional drop. A 50% retracement has December Chicago wheat near $7.28. We believe this move is likely. It will take new bullish fundamental news to drive prices to new highs. At the present, we do not see this news.

If you have any questions or comments, please contact Bryan Doherty at Top Farmer: 1-800-TOP-FARM.

This week's technical picture looks negative for wheat prices as futures broke down, closing below the 50-day moving average on old crop contracts for the first time since May.

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