Wheat is lower by 25% in the last five months consolidating in a 40-cent range over the last six weeks. Like a coiled spring, the longer prices remain constrained in this tight range, the larger the breakout I anticipate. Today marks the first trade above the 50 day MA (dark blue line) in the last four months. Volumes have consistently been around 50,000-60,000 contracts per day on the December contract throughout the month of August, with open interest swelling to near 250,000.
As of this post, wheat futures have appreciated 1.7% today largely due to tensions escalating between Ukraine and Russia, causing speculation that instability in the region could prompt buyers to seek US supplies of grain. Wheat was bid overnight on reports that Ukraine had accused Russia of invading the country, seizing parts of the border and supplying supplies to rebels in the area. Both Russia and Ukraine are large grain exporters and the perceived instability diminishes hopes of a peace deal and in turn could influence supplies being shipped from these regions. Fund short covering also likely contributed to the recent jump. While this move higher may have legs in the short run, I do not see the geopolitical headline risk changing the fundamental picture, so do not expect more than a bounce. That being said, I am not ruling out a move to the 38.2% Fibonacci level, which stands just above $6.25 and represents approximately $2500 per contract.
December 14' wheat daily chart:
*As you can see we are slightly ahead of the 5-year average in terms of exports based on the most recent USDA report. If demand does shift to US wheat because of the conflict in Russia and Ukraine, the pace should increase from 2-3% per week to 5% or greater.
Risk Disclaimer: This information is not to be construed as an offer to sell or a solicitation or an offer to buy the financial products herein named. 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. This report contains research as defined in applicable CFTC regulations. Both RCM Asset Management and the research analyst may have positions in the financial products discussed.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.