The wheat futures markets have fallen by more than 20% since the first week of May. This isn’t too surprising. Several factors teamed up to take the air out of this market. Spring weather has been perfect, Ukraine issues aren’t affecting the markets and commercial producers had been sincere sellers in this rally from February through April indicating the general lack of fundamental risk in this market.
Commercial short hedges increased considerably as the market climbed above the $6.25-$6.40 area from late February through March. You can also see on this chart that commercial traders had been good buyers late last year in the $6.30-$6.50 area. Finally, on the recent decline it’s clear that they’ve resumed their purchasing in earnest below $6.50. Commercial traders are value players with both producer and end line consumer commercial traders seeking the best prices for their respective business needs. The wheat market’s recent swings have clearly identified their value area between $6.25 and $6.50 per bushel.
We’re currently looking for any kind of reversal higher in the futures market to show us that the commercial buying pressure is putting a bottom in this market. There’s good reason to believe the overnight low of $5.74 ¼ could hold. If wheat can extend its bounce, we’ll get long and place a protective stop underneath last night’s low. Finally, we’ll place this trade in the July contract even though first notice day is Monday, June 30th. The July contract expiration should provide some short covering buying to support our position into the notice period.