What’s Up With Wheat?
Earlier in 2007, traders were focused on the U.S. Corn crop, as soaring demand for Ethanol and strong usage for animal feed had the markets wondering how high Corn prices would have to go to curb demand. In retrospect, traders should have been asking the same question about Wheat, as Chicago Wheat futures have soared to new all-time highs this morning, with tight world stocks and strong U.S. exports combining to keep prices climbing. Yesterday, the USDA reported that U.S. Wheat export sales totaled a strong 1.23 million metric tons, despite prices that are well above year-ago levels. India is still aggressively looking to buy Wheat, receiving offers of 530,000 metric tons in its latest tender and looking perhaps to buy up to 700,000 mt if terms are favorable. The U.S. remains one of the few – if not only – Wheat exporters that can still supply large quantities of the crop, as poor weather conditions have wreaked havoc on nearly every major Wheat-exporting country this season. Wheat buyers are counting on improved crops from major Southern Hemisphere growers such as Australia and Argentina to help bring additional supplies onto the market, but so far dry weather condition are making it difficult for these countries to provide bumper crops and help curtail skyrocketing world Wheat prices.
Looking at the daily chart for December Wheat, we notice prices accelerating to the upside as commodity funds scramble to buy and those unfortunate to be short rush to cover their positions in the wake of new all-time highs. Needless to say, prices are well above the major moving averages, and the 14-day RSI is in vastly overbought territory with a current reading of 89.92. It is difficult to project support and resistance levels in this uncharted territory. Traders should be prepared for heightened volatility, and limit moves may become more common until traders can get a better handle on how strong demand for Wheat really is. At the close of the overnight session, December Chicago Wheat was trading at $8.05 ¼, up 20 ¾ cents.
Mike Zarembski, Senior Commodity Analyst
