It was a disappointing week, last week, to say the least, with wheat giving up all of the week's gains on Friday, settling into new contract lows on Chicago Dec and near the contract lows for Kansas City Dec.
Early strength was attributed to the market possibly carving out the seasonal low and establishing a double bottom along with short covering by traders who were concerned about new CFTC regulations affecting storage rates. However, by the close on Friday the selling was attributed to concerns about those same regulations, obviously this time the longs were heading for the door as index funds were nervous about changes to contracts that they're most active in.
Whatever happens with the changes, it's sure to create some significant adjustments and there's plenty of debate about long term effects - and if storage rate changes are indeed what's needed to solve the convergence problem in the first place, which many argue is not the solution.
So wheat is back to the lows we've been testing for over two weeks, and Monday's close suggests that we could well see more downside, looking for stops below this minor trading range. This week will be important to see if these lows hold or if we get a spike down or if we just start another leg down.
Fundamentals haven't changed; they're as bearish as they've been for months, which is not new to the market. It seems like everyone is in the bearish camp now, and it's getting pretty crowded. It's not that I'm turning bullish; it's just that the bear story has been long established and the market is due to come up for air.
The seasonal time window could easily present that opportunity and I don't want to get caught on the short side when the market is basing after a long down move. If we take out the recent swing highs of the last two weeks, there will likely be a major round of short covering. We've seen wheat have quick upmoves before, and this market has the feel of one that is due for some cleansing.
My position is that, at best, we'll test the old double bottom from July. If that happens, it should present some very nice selling opportunities. We'll have to play it by ear if we do see a rally but it appears to stall before reaching the target.
However, if we don't even manage to rally out of here by mid-October, then we're likely not going to and the seasonal time window will pass with little fanfare - not unusual either for a bear market.
Cash markets will still be where most of the action is this marketing year. The discounts are brutal and will likely remain under pressure throughout the year - just too much low quality wheat around and too much feed grain supply around. However, the premiums are finally beginning to get some traction. We should see the premiums stay strong through the winter months, and likely see another surge in the spring when stocks are at their tightest.
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.