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Commentary
Strong export sales and March option expiration seemed to be the only driving forces in the wheat market today. Weekly export sales were good this week totaling 532k metric tonnes which landed near the upper end of estimates ranging 300-600k tonnes vs 569k last week and 233k last year. Year to date commitments are 2.3 million metric tons ahead of last year which is good news from a demand standpoint, however it barely moves the needle on the balance sheet Managed money has maintained a net short position across wheat futures. Funds held a net short position of 110,782 contracts in late January but have covered about 28,000 contracts in the past couple of weeks, fueling the recent rally. Trend and Index funds are heavily long corn and the recent rise to 5.00 and beyond in the deferred contracts has prompted funds short wheat to cover some and follow. It’s a tail following the dog scenario or follow the leader. If corn pulls back does wheat take the lead? I’m not so sure without a supply side story at this point. For that to happen, condition ratings need to drop or Black Sea cash needs to rise or this recent push above 6.00 in Chicago and KC could wither with funds returning as sellers of this 4 week push higher. That would be rinse and repeat for managed money in wheat the last 2.5 years. I’m worried the heavy reliance on corn raises questions as to how much longer the advance will continue provided corn sees a correction. Wheat in my view needs a story to consolidate and then advance. (See Chart below). Technical levels come in as follows for next week. Support is first at thee 100 week moving average at 5.96 for May Chicago wheat. Support is next at the trendline at 5.80/5.79. Below that is 573, the 50-week moving average. A close below and its 562 to 558. Resistance is 6.07 (ten percent higher on year) and 6.09, top of Bollinger band. Above that the market can run to the weekly high of 621 and then 15% higher on year at 637.
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Sean Lusk
Vice President Commercial Hedging Division
Walsh Trading
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