December Minneapolis Wheat: The star performer of the ag complex this fall has undoubtedly been Minneapolis wheat. Since the lows on Sept. 10 to the highs on Nov. 2, the December contract has rallied 26.1%. Last week, however, the contract suffered three consecutive days of selling -- the first three-day losing streak since early September. Many now are wondering what phase of trade spring wheat futures are in. For starters, it is important to point out the 65-cent losses the previous three sessions have not even really entered correction territory. This market has been devoid of correction or consolidation since breaking out in early October. To that end, the current setback has not even reached the 38.2% retracement of the $8.61 to $10.86 rally which hits at $10.00 1/2. We would expect prices to turn much more sideways between spot levels, the 20-day moving average at $10.04 and the $10.00 mark, which is psychological support. The size of the managed fund long still makes us wary that the selling thrust in this market is not over, something which should be confirmed early in the week.
December Kansas City Wheat: A similar, albeit more severe, correction is unfolding in Kansas City wheat. The most conspicuous difference about the two wheat markets is the fact Kansas City surged to new highs on Nov. 2, only to post a key reversal lower by closing below the previous session's settlement. After a long, drawn out rally like that witnessed from mid-October to Nov. 2, a key reversal could spell trouble for managed funds. As of Nov. 2, funds were net long 30,355 contracts of Kansas City wheat, the largest net long held by that group since March 2. That level of bullish exposure by a group which attempts to follow trends could grease the skids for a more pronounced move lower. We would expect strong support to surface at the former resistance-turned-new-support on Aug. 13 and Oct. 4 at $7.64 to $7.69. This would line up quite nicely with the 20-day moving average at $7.66.
December Chicago Wheat: A similar technical construct is present in Chicago wheat as that of Kansas City wheat with a key reversal having been posted on Nov. 2 at $8.07. The first level of support is present at $7.63 1/2 from Oct. 4, just three cents below Friday's settlement. The glaring difference between Chicago and its hard wheat brethren would be the structure of the managed fund community. Whereas funds are holding sizable net-long positions in Minneapolis and Kansas City, funds in Chicago are net short 13,120 contracts. This is undoubtedly a spread or hedge play against hard wheat contracts as the fundamental situation is much more supportive in HRW and HRS in our opinion. The 20-day moving average sits just below the Oct. 4 corrective high at $7.54 1/2 which would also be expected to add support. Finally, there is rising trend-channel support at $7.39. Any further correction would be expected to be fairly well contained, in our opinion.
Comments above are for educational purposes and are not meant to be specific trade recommendations. The buying and selling of grains and grain futures involve substantial risk and are not suitable for everyone.
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