India Adds to Wheat Woes
Trading Ideas
The news that India may be lifting its export ban on Wheat comes at an inopportune time for Wheat bulls. Outside of mainland Europe, much of the globe has had good growing conditions for the grain, suggesting supplies will remain more than ample. While supplies look to be high, the demand portion of the equation remains unknown, likely giving the market a bearish tilt. Technically, the July Wheat contract remains at a vulnerable level, where a breakdown below 725 could trigger further bearish action. Given that there are only 10 days left for July options, some traders may wish to look to the futures market instead. Some traders may wish to consider a trade like selling the July Wheat futures contract on a close below 725, with a protective stop at 750 and a profit target of 675. The trade risks approximately $1,250 and has a maximum profit of approximately $2,500.
Fundamentals
Wheat futures are under pressure going into the summer, unlike Corn, and to a lesser extent, Soybeans. Ample plantings and good growing conditions for much of the US Wheat growing region have helped put away any fear of a shortfall for the current harvest. Further aiding the declines have been the lifting of Russia's export ban and a very high likelihood that India will follow suit by lifting its own export ban. India is coming off three very good harvests and looks to have a record crop this crop year. There is still the question of the extent of the crop damage in Europe, which has faced weather-related issues. Worse than expected crop damage could aid and stop the bleeding in Wheat prices. As the price of Corn rallies, many traders are left wondering to what degree feed lots will begin substituting Wheat for Corn. Corn prices are currently trading over Wheat, which is a rare occurrence for the two grains and is generally a temporary phenomenon. That being said, current market fundamentals continue to favor Corn, while Wheat supplies seem more than ample at the moment. Traders are now left with the question of whether there is enough outside market support to prevent further price declines in Wheat.
Technical Notes
Turning to the chart, we see the July Wheat contract approaching support near the 725 level, which can be seen as significant. Declines below 725 could fuel further selling pressure and bring about a test of the 665 level on the downside. Depending on interpretation, the chart does appear to be forming a head and shoulders pattern, albeit not a perfectly shaped one, with the 725 level as a neckline. Some traders would ideally like to see the market in an uptrend prior to the formation of the pattern, as it is a reversal pattern, so they may discount the significance of the formation. Currently, most oscillators are giving neutral readings, which is not all that unusual in choppy market conditions.
Rob Kurzatkowski, Senior Commodity Analyst
