The Wheat Market Remains Well Supported

June 25, 2010

Name: Brian Henry

Company: Archer Financial Services

Years Trading: 15

Commodity Trading Guide from ADMIS

The 2010 Hightower Commodity Trading Guide is the perfect resource for traders of any skill level. Whether you're new to trading or a veteran, this indispensable guide is a must-have for whatever markets you trade. Including a market outlook for every major commodity, the guide also includes over 350 charts and graphs, all-time high/low prices, 10 years of supply and demand tables and much, much more!

Click here to receive your complimentary guide!

The Wheat Market Remains Well Supported
By Brian Henry, Archer Financial Services

The wheat market remains relatively well supported even as harvest progresses in the southern plains. The market has corrected an impressive rally. Demand has picked up. The key to the wheat market over the near term is very likely the US dollar.

Sellers have not been aggressive on the recent correction. I feel the large net short trend following fund position in Chicago is the primary reason the selling pools continue to dry up. The recent Commitments of Traders Report indicated that trend following funds were net short a record 77,000+ contracts in Chicago. Short covering of late has been very light. I expect the size of the position to decrease slightly on the Commitments of Traders report released this Friday. The Chicago wheat market continues to gravitate toward price levels that would very likely trigger a round of short covering by this group. Barring a major change in the structure of the outside markets, I believe the Chicago wheat market will get an opportunity to test these levels. The key levels to keep an eye on are the respective 50 day moving averages of 489 ¾ and 518 ¾ in the Chicago September and December contracts. Expect to see heavy short covering, if these levels are breeched. Chicago would likely gain on the other wheat markets in this event. A test of these levels requires continued weakness in the US dollar.

The HRW harvest is progressing nicely. Numerous reports indicate that yields are above average in many locations. Additionally, the protein content of the current HRW harvest has not been disappointing. It is very likely this crop will come off with at least average protein. This is being reflected in the weakening of the protein spreads for HRW. Adequate protein content in the HRW crop should also take some of the pressure off the demand for high protein HRS. There are many concerns about the possibility of a low protein HRS. I can see where the market is coming from, but it is far too early to concede a low protein HRS crop. However, this year is setting up much like last year when ample soil moisture and cooler temperatures provided a stress free growing season. However, this year the game has changed. Producers did make a move towards planting spring wheat varieties that tend to yield higher protein content. Additionally, the practice of top dressing spring wheat fields with nitrogen will be used much more often. I believe users of high protein spring wheat need to be involved in the Mpls market from the standpoint of lower Canadian production.

As the wheat market chops around here near mid range, there have not been many great trading opportunities. I very seldom touch that market from the standpoint of flat price futures. I prefer to trade wheat spreads and options. The long Mpls/short Chicago spreads have turned the corner in the July September and December contracts. Recent concerns about the potential size of the North American spring wheat crop have run their course for now. Expect to see more liquidation of these spreads based on Thursday’s close. There will be opportunities to own this spread in the future, but traders can allow the spread to sets back for now. How much the spread set back will likely be determined by the amount of short covering that takes place in the Chicago contract.

If you have any questions about this article, please contact Brian at brian.henry@archerfinancials.com call 1.877.690.7303.

This report includes information from sources believed to be reliable and accurate as of the date of this publication, but no independent verification has been made and we do not guarantee its accuracy or completeness. Opinions expressed are subject to change without notice. This report should not be construed as a request to engage in any transaction involving the purchase or sale of a futures contract and/or commodity option thereon. The risk of loss in trading contracts or commodity options can be substantial, and investors should carefully consider the inherent risks of such an investment in light of their financial condition. Any reproduction or retransmission of this report without the express written consent of AFS is strictly prohibited.

About the Author

Brian developed his interest for the futures market, while growing up on a small grains farm in North Central North Dakota. These experiences allowed him to gain hands on knowledge of the risks associated with farming. Brian pays close attention to the ever changing developments of the agricultural industry. Brian’s first opportunity on the business side of the futures industry was with ADM Investor Services, Inc. As an employee of ADM Investor Services on the trading floor of the MGEX, Brian provided market insight to various customers ranging from large commercial grain companies to country elevators and producers. As a member of the MGEX, Brian experienced the futures industry as a floor broker. His current duties as an Introducing Broker for ADM Investor Services allow Brian to use his experiences to provide clients with insight into market functionality, market analysis and risk management.