Louise Gartner: Sharp moves in wheat define price action
It was a brutal week for both wheat bears and bulls. Early in the week, the market continued its sharp slide from last week, taking prices down 50 cents off of the highs in KC September. But, lest the bear become confident that the bull market was over, a strong close on Wednesday followed by a gap higher and two strong days showed that this market is not yet ready to die.
Indeed, with searing temps returning to the northern plains and spring wheat just trying to make it to the finish line, there are plenty of wheat tr aders who remain long term committed to this market moving higher - and some would say much higher. The retrenchment was deep, with major liquidation of outright longs and bull spreads, but the energy behind the upside reaction was impressive to say the least with huge fund buying leading the way. KC regained its leadership of the wheat complex, despite the continuing problems with spring wheat, and looks poised to remain in that role for some time.
As we look at the other major world producers, it's no wonder that wheat has suddenly done an about-face. Europe took center stage this week as hot and dry conditions spread over much of the continent, just when wheat is filling and ripening. France, Germany, Britain, Italy, Spain, and now the Scandinavian countries are all reporting stress to their crops, with many already downgrading production estimates. Continued talk of acreage reductions in Argentina and Australia also point to lower quality wheat production that would be available during the winter. Canada still has a chance to recover, but again, those hot temps are returning ...
So, all 5 major wheat exporting countries are experiencing production issues, and world wheat stocks/use is already projected to be the lowest in history (as is corn). In addition, the only reason wheat stocks appear to be tolerable is the abundance of feed/low quality wheat. When we look at supplies of quality wheat, those figures only seem to get smaller. It is interesting to note that this recent break in price made the US competitive again for essentially all wheat classes. But do we really want to be aggressive exporters of our very tight supplies of hard wheat?
During our harvest that may not be such an important question, but once the unsold wheat is binned and if the Argentine and Australian situations don't improve, this fall season could hold more dynamics for this wheat market. A demand driven market might turn out to be as exciting as the weather market was. It just seems to me that this bull market in wheat is far from over. The fundamentals (particularly for quality wheat) are very strong and only appear to get stronger as we try to bring the spring wheat crop home. I could be wrong, but I'm in the bull camp. The last sell-off was deeper than I expected, but the funds have bought this market in force the last two days with increasing open interest, and the momentum appears to have shifted higher.
Technically, look for support in the KC Sep at Friday's low of 5.005, then the gap and trough at 4.88 - 4.89. Then look for support at the swing low of 4.77. Resistance should show at Friday's high and trough of 5.15, then the double top at 5.28. In Chicago Sep, look for support at the breakout of 4.03, and then the trough at 3.975, followed by the swing low of 3.89. Resistance should show at Friday's high of 4.14, then the swing high at 4.17, followed by the breakout resistance at 4.20, and then the trough of 4.26.