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Will funds save wheat in 2010?

Well, another year swept by and it seems not too many are sad to see it go. The wheat complex had a tough year, spending most of its time continuing the downtrend following the all-time high of early 2008. We did get some rallies -- one in late spring and another in late fall, but for the most part the bears had their way in 2009.

And for most market watchers, about the only hope for wheat in 2010 lies with the funds who are presumably going to be big buyers to start the year. That presumption/projection has to be the most well-advertised event in market history and every front runner has already made his bet. It’s not comfortable being on the same side of the boat as everyone else, and yet at the same time it's not wise to stand in front of what could be the most well-advertised freight train in market history either.

There's nothing wrong with standing on the sidelines and seeing where this shakes out -- which is where I'm most comfortable. The first week (maybe two) of January should tell the story so we won’t have long to wait. If the funds still have portfolio adjusting to do, they should have it done by then.

The technical traders seem to have stolen the show in the wheat complex lately, and most of those who still watch fundamentals are overwhelmingly bearish. However, the bearish stats are also very well known and clearly reflected in the price structure.

As we look at the upcoming production season, we already know that winter wheat plantings in the US are down significantly -- with most of the loss coming from the high yielding acres in the Midwest. While we have plentiful stocks going into 2010, production will be down notably already, and we haven't even talked about the need to protect the spring wheat acreage base if the spring wheat market wants to produce enough high-pro wheat to offset a huge low-pro crop from 2009.

I continue to think that if wheat is going to have a story this year, it will lie with the acreage battle in spring wheat country, which has seen acreage declines for several years as new corn and soybean varieties become adapted for the shorter growing season of the northern plains. That task will fall on the Minneapolis futures exchange, which could create some volatility for that market. If corn and bean prices stay strong, producers will certainly take a hard look at those other crops.

In other fundamental news, Russia once again swept the business to Egypt as they sold 240 TMT at $191/ton, $7/ton more than U.S. offers. They also announced last week that they would be releasing 4 MMT of wheat for export along with subsidies. Seemed strange that they would need to subsidize since they're already the world's lowest priced seller, but it certainly speaks to their commitment to increasing their footprint in the world wheat export arena.

Also last week, Ukraine put out projections of 2010 wheat production which were down significantly from earlier estimates. They are already expecting that the poor planting conditions and poor establishment will lead to lower yields, more than offsetting the increase in acreage.

India, on the other hand, has had an ideal planting season and generous rains since then. They are projecting another record crop, which would be their third in a row. Their government is also releasing stocks into the domestic market to help relieve rising food costs.

Argentina is quickly moving through their harvest, now sitting about 71% complete. They did have some rain delays earlier and there were concerns about quality but most of those issues seem to have faded. Their yields were better than expected and the government has announced a release of 240TMT for export.

Technically, wheat has minor resistance at last week’s high. But it's the funds that everyone will be watching, and the first couple weeks of Jan will likely tell the story for short term price direction. Either way, I still expect that wheat will find another leg up into the spring time, so it's just matter of if we start from here or if there’s another leg down coming first that will test the October low.

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.

Well, another year swept by and it seems not too many are sad to see it go. The wheat complex had a tough year, spending most of its time continuing the downtrend following the all-time high of early 2008. We did get some rallies -- one in late spring and another in late fall, but for the most part the bears had their way in 2009.

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