Monday, June 11, 2012
The Wheat futures market has been a "follower" in the grain complex, taking its price queue from the direction of the Corn market, and even moving in tandem with the "risk-off" and "risk-on" price movements of the commodity markets in general. Now with the winter wheat harvest under way, seasonal harvest pressure may overwhelm bullish global production estimates, especially given market participants' current "fear" of "risk" assets such as commodities, while the European financial crisis remains unresolved.
Wheat futures prices have become volatile lately, as many traders' concerns about lower global production are overshadowed by economic concerns in the U.S., Europe, and China. Many analysts expect the USDA to have lowered their estimate for U.S. Winter Wheat production by 50 million bushels to 1.644 billion bushels when the June crop production report is released on Tuesday, as dry weather in the western plains is expected to have lowered yields. Globally, the picture is not much better, as less than ideal weather has played havoc with Wheat production in both China and Russia. This may lead the USDA to lower global production by as much as 6 to 8 million tons. Though the production totals appear to favor the bulls, continued uncertainty surrounding Europe and its economic future has continued to weigh negatively on commodity prices, and in many cases, has overwhelmed what may be perceived as bullish fundamentals for a particular commodity. For Wheat, lower prices for Corn has shifted animal feed usage away from Wheat now that Corn has once again become "cheaper". Wheat prices also have to contend with harvest selling pressure, as producers and commercial grain elevators sell futures to hedge incoming supplies. This tug-of-war between bulls and bears may continue in the coming weeks until we see a trend emerge.
Technical Notes
Looking at the daily chart for September Wheat, we notice prices have retraced nearly 80% of the steep rally seen in the Middle of May, when prices climbed by over $1.20 per bushel in only 5 trading days. Prices are now attempting to test the 20-day moving average, which so far has acted as near-term resistance. Volume has shown a sizable increase lately, though most the increase may be due to the rolling of positions from the July futures ahead of first notice day at the end of June. The 14-day RSI has turned neutral, with a current reading of 49.67. 629.25 looks to be near-term support for September wheat, with resistance found at the 20-day moving average, currently near the 659.75 area. 86.
Mike Zarembski, Senior Commodity Analyst