Wheat reverses its retreat!
Fundamentals
Wheat futures prices are beginning to stage a comeback after hitting contract lows earlier this month, as a weakening U.S. Dollar and the building of a "weather premium" have traders marking the blue side of their trading cards again. The recent weakness in the U.S. Dollar is beginning to make U.S. Wheat more attractive to foreign buyers, who have gone to Europe and Canada to meet their needs lately. U.S. weekly Wheat export sales totaled 262,300 metric tons for the week ending December 11th, and it is believed that Pakistan, Morocco, and Jordan are also in the market for Wheat this month. To major Southern Hemisphere Wheat exporters, Argentina and Australia are experiencing production problems, with the Argentinean crop estimate falling to 9 million metric tons from 16 million tons last year due to drought-like conditions. Australia is facing the opposite problem, with heavy rains affecting the quality of the Wheat crop and stalling harvesting efforts. Here in the U.S., traders are starting to fear possible "winter kill" for parts of this season's crop, with dry conditions and bitterly cold temperatures in parts of Kansas and the Southern Plains sparking the concern. However, it is still early in the season for Wheat, and any additional forecasts for snow will help elevate the current concerns. Both large and small speculative accounts are net-short Wheat futures according to the most recent Commitment of Traders report, which may spur additional short-covering buying should the rally continue.
Technicals
Looking at the daily chart for March Wheat, we notice price moving back into the center of the recent consolidation pattern that's been forming since late October. Prices proved to be unstable below $5.00 per bushel, as short-covering buying emerged. Before saying that the lows are in, notice the declining volume on the recent upward price move, which may be a sign that little fresh buying is emerging, despite prices moving above the widely-watched 20-day moving average. This leads to the assumption that the rally is strictly based on short-covering. Major support is seen at the contract lows of $4.71, with resistance found at the top of the consolidation at $6.08.
Mike Zarembski, Senior Commodity Analyst
