07-22-11: Wheat Market Trending Upward?

The chart for the September Kansas City wheat shows a short-term up trending market. The price action this week confirmed the price direction. The September Kansas City wheat contract gained 15 ½ cents for the week. This contract closed above the 50-day moving average on Friday. Strong resistance is at $8.00. A close above this mark will likely cause another leg up on the price chart.

In the last two weeks, the wheat market fought off numerous bearish fundamentals. The strongest negative factor is Russia returning to the wheat export market on July 1. They have the best price in the world but not always the best quality. In addition, they have a freight advantage because of their location to wheat importing countries. Jordan and Syria have wheat tenders in place with bids due by the end of the month. Their source will likely be out of the Black Sea Region.

On Friday, Iraq issued a 100,000 metric tons wheat tender. This is option-origin wheat. The United States has a good chance of securing this business. Iraq has a tendency of purchasing more bushels of wheat than they tendered for. The only problem with Iraq is the time it takes to finish the sale. The traders quickly lose interest.

It is a positive for the wheat price when negative factors have little effect on the price action. In the last two weeks, this has been the case. The positive technical picture seems to have outweighed the negative fundamentals. It is a technical versus fundamental market with the bullish technical traders winning.

The wheat market is close to a time when a seasonal low can occur on a fifteen-year average. To participate in rally into the fall months, look to buying December Kansas City wheat futures or call options. A spread trade to consider is buying December Kansas City wheat and selling July 2012 Kansas City wheat contracts. No matter which trading strategy you incorporate, make sure you understand the risk and apply some risk management.

Tom Leffler
Leffler Commodities, LLC
2901 Lakeshore Drive
Augusta, KS 67010
866-468-6866

Larry Glenn
Frontier Ag
Quinter, KS
785-754-3348

PLEASE NOTE THAT THERE IS AN INHERENT RISK OF LOSS ASSOCIATED WITH TRADING FUTURES AND OPTION CONTRATCS EVEN, WHEN USED FOR HEDGING PURPOSES. PLEASE CAREFULLY CONSIDER YOUR FINANCIAL CONDITION BEFORE INVESTING IN FUTURES AND OPTION CONTRACTS. FUTURE’S TRADING IS NOT SUITABLE FOR ALL INVESTORS. OPTIONS CAN AND DO EXPIRE WORTHLESS. IF YOU PURCHASE A COMMODITY OPTION, YOU MAY SUSTAIN A TOTAL LOSS OF THE PREMIUM AND OF ALL TRANSACTION COSTS.

PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.

SEASONAL TENDENCIES ARE A COMPOSITE OF SOME OF THE MOST CONSISTENT COMMODITY FUTURES SEASONALS THAT HAVE OCCURRED IN THE PAST SEVERAL YEARS. EVEN IF A SEASONAL TENDENCY OCCURS IN THE FUTURE, IT MAY NOT RESULT IN A PROFITABLE TRANSACTION AS FEES AND THE TIMING OF THE ENTRY AND LIQUIDATION MAY AFFECT THE RESULTS.