Wheat in the Teens?

Includes: DBA, JJA, RJA
by: Hard Assets Investor

By Brad Zigler

Soybean bulls who waited decades for futures prices to reach the fabled ‘teens may soon have company. March CBOT wheat closed up a whopping 80.5 cents (9.1%) at $12.80 per bushel Wednesday after an extremely volatile trading session. Early weakness spilling over from a steep sell-off in the overnight market finally gave way to a sharp rally going into the close, yielding a $2.15 trading range for the day.

Ag ETFs and ETNs closed lower on the day as weighted losses in the corn and soybeans markets swamped wheat's record-setting gains. The PowerShares DB Agriculture Fund (AMEX: DBA) was down 1.2%, the Rogers International Agriculture note (AMEX: RJA) was off 1.7% and the iPath Dow Jones-AIG Agriculture ETN (NYSE Arca: JJA) slipped 0.5%. Even the three-grain iPath JJG note, with a 26% weighting in wheat, dipped 1.2%.

So much money was poured into wheat Wednesday that the current crop market flipped to backwardation. The May CBOT contract rose 35.5 cents to settle at $12.50 per bushel, 30 cents lower than the spot contract.

Front-month wheat prices have climbed 45% since the beginning of the year.

The high range close on Wednesday and technical indicators (i.e., stochastics and RSI) are bullish signals, but markets like this are likely to see continued volatility.

If Chicago wheat in the ‘teens still sounds far-fetched, consider this: Minneapolis wheat is already changing hands at $20 per bushel.

CBOT Wheat (March 2008)