Great Grains
Wheat – Dwindling stocks have left Wheat importers scrambling to lock up supplies, resulting in another limit up session for the grain. Yesterday’s close marked the sixth consecutive limit up session for the prized hard-red spring variety traded on the Minneapolis Grain Exchange. Supplies of Spring Wheat are at the lowest levels since 1978 and the USDA is forecasting a 30 percent decrease in the size of the protein-rich variety. The situation is not expected to get better anytime soon due to dry conditions in Canada and Argentina. Producing nations have been exporting at breakneck speed, evidenced by the strong U.S. export sales figures over the past two months. The MWH8 contract is limit up in electronic trading, breaking the $15 per bushel mark and bringing the Chicago and KC contracts up right along with it. March CBOT Wheat broke through previous contract highs and closed above the $10 mark for the second consecutive session. The market is now eying $11, which may offer some resistance and finally slow things down. The MWH8 future has gained over 75 percent over the past three months, versus gains of just over 25 percent in the KWH8 and WH8 (see chart below). This suggests a possible “short squeeze” under way in Minneapolis, with shorts being forced to buy back positions on top of new money hitting the market.
Cocoa – Cocoa futures are extending recent rallies with strong gains overnight. Relatively under-priced compared with a number of other markets, Cocoa has managed to attract a fair amount of the fund money leaving other commodities. The attractiveness of Cocoa can be evidenced by the market's resiliency on this past Friday and earlier this week, while the rest of the commodity markets were dragged down by the Gold sell-off and renewed strength in the greenback. Growing regions in the Ivory Coast and Ghana have not seen any significant precipitation in recent weeks, which, coupled with the Harmattan winds, may lead to a small midcrop of sub-par beans. Expectations that the next crop year may yield a record harvest could somewhat temper the bullish enthusiasm, and the market may labor if and when it approaches 2500. March Cocoa made new contract highs of 2405 in electronic trading, but has initially rejected advances beyond 2400. Due to the overbought technical conditions, traders may be inclined to take profits if the market is not able to rally beyond the 2400 mark by the pit close. A sharp reversal may see the market test support at 2237 or possibly the 2174 Fibonacci retracement support. Support comes in at 2332, 2310 and 2290, while resistance can be found at 2416 and 2433.
Rob Kurzatkowski, Commodity Analyst
