Inspections Add to Wheat Woes
Fundamentals
Wheat futures are lower this morning, following weaker grain inspection figures indicating that demand for US Wheat continues to weaken. Overall world demand for the grain does remain fairly stout, but the stronger US Dollar has hurt exports of domestic grain. The weekly inspections figure shows 9.4 million bushels inspected for export, which is the lowest figure this marketing year. This is also 24% lower than last week's figure. Wheat continues to feel outside pressure from the record high Corn acreage, which has caused traders to liquidate longs and go short the grain complex. It looks as though long-only index funds may have rebalanced their portfolios last week, indicating that there may be little fresh buying, which could possibly open the door to more feverish selling in the event that investors pull their capital out of long-only funds. Specs continue adding to the short position in Wheat, but not enough to trigger oversold levels. There are few bright spots for the Wheat market at this point, and it may take a sharp reversal in the US Dollar for traders to once again go long the grain.
Trading Ideas
Given the weak fundamental outlook, some traders may wish to employ a bearish strategy in the Wheat market. However, there has not yet been a confirmation of a new downside breakout, so traders may wish to remain cautious. Some traders may wish to wait for a solid close below 494.25 before establishing a short position, with a protective stop at 510 and a downside objective of 470. The trade risks approximately $762.50 for a potential profit of $1,212.50.
Technicals
The March Wheat chart shows prices coming down to test the October 30th low close of 494.25. This can be seen as a critical support area, which could determine the intermediate market direction. The next significant area of support would be near the 470 level, which if breached, may suggest that price could test early October lows. The RSI is nearing oversold levels, which could act as a buffer to the downside.
Rob Kurzatkowski, Senior Commodity Analyst
