Having been a proponent of bullish grain plays for several weeks now, I'm happy to see new crop wheat and corn on the verge of breaking above significant downtrend lines. These have acted as resistance for two quarters, so a break above should produce a meaningful move higher.
Wheat prices appear to be forming a base after falling 20% in the last six months. We're now about 5.5% off the April Fool's Day lows, which can be called an interim bottom for now. Corn is also building a base after trading 15% lower in the same time frame.
There's been cold, wet weather in the Midwest recently. Prior forecasts had called for warmer and drier weather. This would have allowed farmers to make progress on planting their crops. But favorable weather never came to be… and recent forecasts have shifted to suggest more cold, wet weather is on the short-term horizon. As long as field work is limited, expect a weather premium built into the new crop contracts. Prices are likely already reflecting this. We'll get a crop progress report later today, but the bigger news will come in a few weeks (May 10th) with the next USDA crop production report.
December corn is above its 50-day MA (dark blue line) as of this post. A close above this pivot point would be the first settlement above the 50-day MA since March 27th. Furthermore, a close above the trend line has not happened in 2013. A close above $5.50/bushel in this contact should lead to a recovery back to at least the 38.2% Fibonacci level, which is just better than 30 cents above current trade. The idea is to gain bullish exposure via futures and/or options. Use Fibonacci levels on the chart above as your objectives.
Wheat's gains have likely been boosted by higher corn prices, but recent freeze damage is also a contributing factor. The jury is still out on how much damage was done to crops in the Southern plains by the freezing temperatures experienced earlier this month. I've always said that Mother Nature is unpredictable. It's very common to see a few weather scares in each crop cycle. The market is pricing in this uncertainty ahead until mixed weather reports are resolved.
Wheat is approaching two week highs and seems poised to break above the 50-day MA (dark blue line). As with corn, I am suggesting bullish trade in wheat via futures and/or options. Use the Fibonacci levels as your objectives. The 38.2% level is your first target, approximately 45 cents above current trade.
Risk Disclaimer: The opinions contained herein are for general information only and not tailored to any specific investor's needs or investment goals. Any opinions expressed in this article are as of the date indicated. Trading futures, options, and Forex involves substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results.