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Rich Nelson: Quake makes the trade nervous

03/11/2011 @ 3:16pm

Wheat Commentary 

Fundamental Support:  The wheat market continued its downward slide today. That makes 5 lower closes in a row for those of you keeping track. For the week, the Chicago wheat closed 118 3/4 and it was the lowest close for this contract month since December 1st. This market was pressured all week by multiple negative forces. Fears about Middle East unrest spreading into Saudi Arabia has speculators liquidating positions in attempts to reduce risk. The USDA threw a curveball at the trade and raised the ending stocks by 25 million bushels on Thursday’s WASDE report. Then the bearish news was piled on with the major earthquake that hit Japan overnight. This news had pushed the market 36 3/4 lower at one time last night. We ended up settling the market 21 3/4 lower for the day.

The trade is nervous about how the earthquake will affect the demand for wheat by Japan. They are the worlds 5th largest importer of wheat. They are the number two buyer of U.S. wheat. They have purchased 3.387 million tonnes this year, 988,800 tonnes have yet to be shipped. It will take some time to see how much damage might have been done to the counties infrastructure and how this might affect imports. The other question that we will need to have answered is how much grain might have been damaged by the tsunami. On the weather front, there are still no new rain events advertised for the wheat belt the next week to ten days. This could be supportive to the market when the fear liquidation finally subsides.
Direction: The charts are looking worse by the day. Most contract months have taken out the long term uptrend lines as well as the 100 day moving average. The negative charts combined with the bearish fundamental news from the USDA yesterday and the fear based selling from today will keep the pressure on the market. We will need a real production problem here or in China to turn the trend back up. With normal spring rains, Allendale projects the July contract to test the 689 level.

Jim McCormick

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