Perfect Storm for Wheat Futures!
Every day seems to bring new bullish fundamentals for the Wheat futures market, setting the stage for the current explosive run to all-time record high prices. Australian Wheat production may fall as low as 16 million metric tons this year – nearly 30% below the most recent government forecast – as hot, dry weather has damaged the crop on the western portion of the continent. Nearly every major Wheat exporter has experienced some problem this year, keeping supplies tight. India purchased 795,000 metric tons of Wheat this past weekend, with the majority coming from Russia. Despite record high prices, there are reports that India is still in the market for even more Wheat to ensure adequate domestic supplies. Egypt is reported this morning to have tendered to buy Wheat as well. Wheat futures markets around the world are trading at record or near-record highs again, with Liffe’s November Paris milling Wheat futures up 5.3% today, trading at a new all-time high of 300 Euro per ton. Liffe’s November London feed Wheat futures also hit a record high of 197.50 Pounds per ton in early trade. In South Africa, December Wheat futures traded a record 2,999 Rand per ton on the South African Futures Exchange. In the U.S., the most-active December Chicago Wheat futures were trading up the 30-cent limit at the end of the overnight session, and the spot month September contract posted a new all-time high of $8.37 per bushel today. Now that Wheat prices have gone parabolic, there is no telling how high prices have to go to start to ration demand. Wheat, unlike other commodities, is a necessity with few good substitutes available, which is why we’re seeing Wheat exports holding strong despite the high prices. Traders must expect extreme volatility in the Wheat futures market, with limit moves becoming more common on both the upside and downside in the near-term.
Looking at the daily chart for December Wheat, we notice prices moving near-vertically as few sellers are willing to stand in front of a charging bull. No surprise that the 14-day RSI has reached vastly overbought levels with a reading of 88.25. With the market trading in a near-panic mode, any support and resistance points would be nearly worthless as prices can and will move quickly through these points. Though fundamentals figure to remain bullish, that does not mean a sharp price correction cannot take place – a decline of $1 or more may occur quickly and slippage on protective sell-stops may be severe! At the end of the overnight session, December Chicago Wheat was trading at $8.35 ½, up 30 cents.
Mike Zarembski, Senior Commodity Analyst
