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Price action gets choppy

The price action in the wheat complex this past week has not been for the faint of heart. Nevertheless, we’ve pushed into new contract highs in KC and Minn, with even Chicago finding some buying interest as it finally moved above the January swing highs. The funds got much of the credit for the buying surge, but fundamentals were also increasingly positive as the week wore on.

Iraq did, indeed, change their tender quantity to 1 MMT instead of the 150,000 originally announced. Trade perception is that the US will get all, if not most, of that business and it is expected to be hard wheat. The export sales report showed that we still have over 800,000 tons of old crop wheat yet to deliver to Iraq from previous sales.

The southern plains continue to be extremely dry, despite some notable rains that finally fell in eastern TX. Longer term forecasts all but confirm a La Nina event, which suggests a dry February for the far southern plains. If that forecast evolves, the market will have little choice but to move higher. If the rains do come, as they often do, then the market will likely see a significant decline from these lofty levels.

The extreme cold temps in Russia and Ukraine have crop watchers suggesting as much as 30% of their acres could be damaged from winter-kill. The European Union saw an increase in demand because of the transportation problems those cold temps are creating in Russia and Ukraine. The EU also lowered their subsidies by 2.3 Euros/ton in their weekly export sales report. The EU is still seeing a very large demand from member countries for wheat to enter into intervention stocks, particularly from landlocked Hungary.

In the US, export sales were a little on the light side at 375,000; with two-thirds of the marketing year behind us, we still running about 4% behind the average pace needed to reach USDA's projections.

The funds warned us that they'd be increasing their involvement in commodities after the first of the year, and that has certainly been the case. The new index fund from Deutch Bank focuses on wheat, corn, energies and metals; and they were very active players this week. There is floor chatter about possible 'window dressing' by funds, meaning trying to close the markets into new highs to end the week and the month to generate buy signals for mechanical trading systems. This would support their current position by bringing in more buying, but it has a tendency to put the market into a very overbought situation and could lead to more selling pressure if/when the market falters.

Technically, the trend is still up despite the spike high formation left on Friday. If we don't see follow-through selling early in the week, expect the buyers to step again to support the pullback. Seasonally, wheat tends to peak in early February, so be watchful of topping action. If we do get continued selling next week, then this spike high could turn out to be a longer term high.

This publication is strictly the opinion of its writer and is intended solely for informative purposes. It is not to be construed, under any circumstances, by implication or otherwise, as an offer to sell or a solicitation to buy or trade in any commodities or securities herein named. Information is obtained from sources believed to be reliable, but is in no way guaranteed. Futures and options trading always involve risk of loss.

The price action in the wheat complex this past week has not been for the faint of heart. Nevertheless, we’ve pushed into new contract highs in KC and Minn, with even Chicago finding some buying interest as it finally moved above the January swing highs. The funds got much of the credit for the buying surge, but fundamentals were also increasingly positive as the week wore on.

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