TFM Weekly Perspective 9-16-2022


Technical Picture for Wheat Showing Signs of a Price Rebound

Wheat futures charts are indicating a market that has dropped from spring highs, consolidated, and now in a position to rally. A rising dollar and improving spring wheat conditions, coupled with grain movement out of Ukraine, all pressured wheat prices. That, after multi-year prices were established in spring, when we saw the December Chicago contract peak at $12.82. The ensuing price tumble to $7.81-3/4 by August 17 likely was a market moving too far, too fast. Prices have since rebounded, closing last week at $8.69. A price chart formation (called an inverted head-and-shoulder) points higher for prices, with a target of near $10.00.

Several factors point to higher prices; however, the main driver is Northern Hemisphere crops that will likely not live up to their potential. This includes both corn and wheat, suggesting neither will be a substitute for the other. Condition concerns in U.S., Europe, and China, due to weather (mostly drought) and a war in Ukraine, all combine to suggest 2022 crops and export activity is not likely business as usual. Recent rhetoric from Russia’s president Putin threatens movement of grain out of Ukraine in what appears to be a very fragile agreement that may fall apart at any time. As the war drags on, it is highly likely that Ukraine, due to population displacement, supply disruptions, and time of year, will not plant fall acres as normal. That sets the stage for smaller world supplies in 2023. The bottom line: the world will likely not build its supply in 2022, which leaves 2023 as a critical production year. Wheat prices may need to rally to compete for acres. In the months ahead, more data will likely indicate a tightening old crop world supply and countries scrambling to cover needs into the winter months.

Producers in the U.S. might be advised to be selective sellers. Drought conditions continue to plague the western half of the United States, and world supplies will likely remain tight into the summer of 2023. Yet, when rallies do occur, take advantage of them. There’s an old saying: a known fundamental is a useless fundamental. This basically implies that, at some point, bullish news is no longer friendly to prices. Making cash sales and covering these sales with call options or bull call option spreads is advisable to generate sales, cash flow, and gives you a good idea of where you will stand financially with those bushels. Put options are recommended on bushels you don’t intend to forward sell prior to harvest or may even store. Establishing price floors through puts is sometimes challenging to consider when prices are rallying, However, keep in mind just how fast prices can lose value when they drop. The goal with this strategic approach is to plan ahead, execute, and avoid changes in outlook where, suddenly, opportunity is gone in days or weeks.

In your planning, be sure to recognize the risks and rewards of any position or strategy. Seek a professional to help you prepare for the unknown.

Futures trading is not for everyone. The risk of loss in trading is substantial. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Past performance is not necessarily indicative of future results.


Bryan Doherty

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