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Wheat surges into new highs

The activity in the wheat complex picked up bullish momentum last week with the gap higher trade into new contract highs in Kansas City and Minneapolis, with Chicago finally moving above major swing highs. The fundamentals have been bullish for several weeks, and the bulls got another goose when India announced they'd import 500,000 MT immediately.

Still no word on the Iraqi purchase of 1 MMT of hard wheat, with lots of chatter of them scattering the business around. However, if they do get most or all of their purchase from the U.S., we can expect that Kansas City will continue to move higher with front months leading the way.

The weather forecasts continue to call for La Nina to keep moisture out of the southern plains, which is certainly having its effect on KC price action as well. While we all know how quickly prices can tumble with even a forecast of rain, and how quickly wheat can recover with some timely rains, the KC futures have been very well supported because of the dryness – even during dormancy.

With the growing season quickly approaching and no clouds building over parched fields, this 'weather market' isn't ready to roll over. And it won't until we get a good soaking rain in at least some major region of the southern plains. While Kansas' crop is looking ok for the most part in most areas, we see the dry conditions spreading across most of that state as well. The growing season is barely getting started, there is likely much more price volatility in store before we bring this crop home.

With this strong bullish scenario, one would think wheat prices will go up forever. But, here we are in early Feb, a time of year when wheat prices tend to top out, sometimes for the whole year. We've reached upside technical targets on gap action – if the gaps don't hold, they would be considered exhaustion gaps and signal a top. Obviously, the price performance early this week is very important; if the momentum falters, then we'll likely see at least a temporary top that will lead us into the February Break, the seasonal where grains tend to be weak (sometimes very weak) into late Feb/early March.

Considering the lofty levels we've reached in all three wheat markets, it seems prudent to take advantage of these prices. For producers, it's an excellent opportunity move old crop and price at least some of the new crop. You may even consider pricing '07 crop as well. While fresh demand and Mother Nature can force prices higher, these prices are just too good to let pass by. If prices do continue higher, it's an opportunity to price more '06 and '07 crop.

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 activity in the wheat complex picked up bullish momentum last week with the gap higher trade into new contract highs in Kansas City and Minneapolis, with Chicago finally moving above major swing highs. The fundamentals have been bullish for several weeks, and the bulls got another goose when India announced they'd import 500,000 MT immediately.

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