It was getting ugly in the wheat complex with spec longs among others getting run out well below 5.00 amid yesterday’s rout. Both KC and Chicago contracts were staring at the 4.60 level should we have fallen hard below the last bastions of key support at 4.87 (Chicago) and 4.82 (KC). We have been bemoaning the lack of demand for US wheat for some time. In my view the rallies this year have been supply side driven, i.e. (weather related). Weather driven markets need to be fed every few weeks or so or the news gets stale and the markets succumb to profit taking and retracements as bullish weather news gets priced in. However overnight saw some fresh demand news enter into the wheat market sending futures higher. Was today’s rally a reversal, or merely short covering by funds who are net short KC and Chicago?
News: Cargill this AM offered Egypt two cargoes of US SRW at $219/MT, the cheapest of all wheat offered to Egypt. Ultimately Egypt still could buy Russian/Eastern European based on cheaper freight.But, this could be a sign that the US will now compete for non-traditional destinations moving forward including the world’s number one buyer. It was a shot in the arm the wheat market needed from a demand tone, as it could set a floor for price if the US can move up a rung or two on the world wheat export ladder.
Trade Idea: First trade the charts into next week as we settled near levels I deem important if wheat can push higher from here. Weekly settlement today at 505.2 which is over trend line first support at 504 for next week in Chicago wheat. If we can stay above 5.04, next resistance is 514. Over 514 sets up 528.2 and then 544.2. Support is the aforementioned is 5.04. A hard close below and its 4.88. Below 4.88 its 4.80.
For KC wheat, we settled the week at 500.2, just above 499 which is initial support next week. Under 499, next support is 487.2 and then 482. Under 482 its 461. Resistance is 505.2, and with a close over 518.2. Over this level and its 530 which to me is a major area.
I would play these areas in futures and bypass the options for now. Chicago wheat over corn rallied 11 cents today and settled right on trend line resistance at 1.37 wheat over. Halfway back pushes this spread to 1.52 Chicago wheat over corn from the latest break. Given fund positioning, funds have a deeper short in Chicago and that’s one of the reasons aside from the Egyptian US SRW tender that Chicago wheat is trading a premium to KC at 5 cents over. Call me with questions and futures/options trade ideas. Looking at the markets overall I can’t see the volatility waning anytime soon. We have month end next week, a major USDA grain report on the 8th, FOMC on (NOV 7-8). Major gyrations are occurring in the Stock Indices almost every day amid trade disruptions, earnings, and geo-political headwinds.
Call or email us for levels and ideas. 888 391 7894 or slusk@walshtrading.com
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