Wheat Prices Fly as Bulls Continue to Buy!
The records keep on coming for Wheat futures, with the December 2007 Chicago Wheat futures contract surpassing the $9 per bushel level for the first time in history. Panic buying took hold at the end yesterday’s day session as traders were fearful of being caught short ahead of the USDA supply/demand report due out today at 7:30 AM Chicago time. Analysts expect the USDA to cut its U.S. Wheat carryout estimates, as strong U.S. exports and unfavorable growing conditions in nearly all of the major Wheat-exporting countries are expected to keep next season’s stock extremely tight. The average estimate for 2007-08 Wheat ending stocks is 376 million bushels according to a Dow Jones Newswire survey, down from the 404 million bushels the USDA estimated in its August report. Canadian Wheat stock estimates were lowered, as Statistics Canada estimated Canadian Wheat stocks at 6.828 million metric tons as of July 31st – well below pre-report estimates of 7 to 8 million metric tons. Traders also feel that the USDA will lower its production forecasts for Australia, Argentina and the EU as well. With record high prices, one might assume that Wheat-importing nations would hold back on their buying in hopes of lower prices, but that hasn’t been the case recently. Japan is said to have tendered for 155,000 metric tons and Egypt is back in the market for another 55,000 tons, with some of it expected to be U.S. Hard Red Winter Wheat. Though a correction in prices seems imminent, traders should be aware of the famous market words to live by – “markets can stay irrational longer than I can stay solvent!”
A look at the daily chart for December Wheat inspires one simple reaction – WOW! The 14-day RSI was reading an extremely overbought 89.14. With prices in such uncharted territory, support and resistance points are nearly meaningless. However, this morning’s major USDA report could be the catalyst for a badly needed correction in prices. Even if the report is deemed bullish after the release, extreme volatility should be expected! At the end of the overnight session, December Wheat was trading at $9.06 ¾, up 16 ¼ cents.
Mike Zarembski, Senior Commodity Analyst
