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Wheat trying to establish a bottom

The wheat market made a strong effort last week to establish a low with an outside day higher on Tuesday and even some follow through buying early Wednesday.

But, unfortunately, it couldn't hold the gains and proceeded to sell into new lows in Chicago and retest those Tuesday lows in KC. Corn is still the leader of the grain complex and wheat is still overpriced in the world market, so when corn fails to move higher, wheat takes the brunt of the selling pressure, particularly Chicago wheat.

But the opposite is true well; when corn surges higher wheat is right behind, particularly in Chicago. So, while the basis is slowly improving for hard red winter and on the breaks KC holds together better than Chicago, if corn re-ignites its rally, don't be surprised if Chicago performs better than KC, at least initially.

However, even if corn continues to rally and pulls wheat higher, ultimately wheat needs to stand on its own feet if it's going to reach those lofty $6 levels that had the bulls drooling just a couple of months ago. It can do it, but cash will have to be the leader and it will most likely come from demand for hard red winter.

That's where things are breaking down; even though we've seen the hard red basis improve slightly, we're still getting thumped in the export market. The Black Sea region isn't letting up with their exports and we continue to lose business for both hard and soft wheat.

Having said that, I do believe that eventually the demand will surface for US wheat. There is clearly pent up demand for the quality wheat, evidenced by KC not falling as hard as Chicago. With already a short crop this year, the Black Sea exports are unlikely to last much longer. With the absence of Australia this year, the business that normally flows in Australia's direction will be re-routed, with the US ready and waiting.

And so we wait, we're used to that. Granted, the exports numbers look paltry with the US lagging 19% behind last year and the pace of exports compared to projections are 9% behind the 5-year average. We clearly need to pick up some slack as we move into the second half of the marketing year; which I think is entirely possible- at least for hard red winter. Soft red may not get that kind of boost-unless corn continues to push higher.

So, we first wait to see if wheat can move off of these lows and establish at least a short term bottom, and then see if we outprice ourselves again in the export market. If/when the time comes when higher prices do not slow down exports, then we know we're off and running. In the meantime, corn will continue to be the leader- up or down.

Technically, Friday reversed higher after setting new lows in Chicago while KC only tested those lows. Look for initial support at Friday's low for both KC March and Chicago March at 5.22 and 4.85 respectively. In KC, look for additional support at the 5.17 swing low and gap, followed by the 5.14 breakout and the 5.04 trough. Look for resistance at the trough of 5.33, followed by the trough of 5.44 and then the swing high of 5.53. In Chicago, look for additional support at the breakout of 4.70, followed by the trough at 4.60. Look for resistance at the breakout and trough from 4.98- 5.00, followed by the swing high of 5.17 and then the trough at 5.21.

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 wheat market made a strong effort last week to establish a low with an outside day higher on Tuesday and even some follow through buying early Wednesday.

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