Technically Speaking

World wheat supplies continue to be whittled down at the worst possible time. Following Russia's invasion of Ukraine and subsequent attacks on infrastructure and Black Sea port blockage, what the world could ill afford was further decimation of available export supplies of wheat. However, with hot and mostly dry weather beginning to adversely impact EU wheat supplies, and with the drought in our own hard red winter areas and cool, wet weather continuing in the major spring wheat states North Dakota and Minnesota, bullish traders have bought futures with reckless abandon.

Although Paris wheat and the three wheat contracts in the U.S. have rapidly reached what would normally be considered overbought conditions, there is little in the way of bearish news for wheat and people must eat. The heat and dryness not only in India, but also in neighboring countries -- Pakistan and Bangladesh -- should also lead to higher demand from those areas, which have their own domestic production issues. Expectations are that Pakistan could up their imports from a USDA-projected 1.5 million metric tons (mmt) to possibly 3 mmt to 4 mmt. It appears that even at record high prices, wheat shows little sign of slowing its ascent.

A combination of very slow planting and even more challenges ahead for both the Northern Plains and Eastern Corn Belt and the potential for reduced corn area as late planting could lead to a shift of corn acres to soybeans, has resulted in higher highs of late. Add to that the prospect for a long-lasting Indian wheat export ban, set to occur in July, and the wheat market has exploded. The net effect is to totally take wheat out of the equation as a feed ingredient, further adding to the bullish corn pattern.

The December corn futures have plenty of upside, with funds still holding a bullish position and wheat running away to the upside and showing no sign of rationing despite record prices. Expect volatility to remain high, and sharp corrective breaks are a possibility; but world wheat supplies continue to dwindle, making corn that much more valuable, as even feed wheat supplies are now too expensive.

Since reaching a new multi-year high of over $116 per barrel in the first week of March, July crude oil has moved sideways in choppy fashion. It appears to be coiling in a symmetrical triangle chart formation. The net effect would seem to be an ultimate breakout of that pattern. To the upside, that breakout area should be around $110 to $111 per barrel, and to the downside, under $98. We are very close to that upside level, and as U.S. diesel prices continue to make new highs, it would appear crude oil has some upside potential. The market is nowhere near being overbought technically, and the path of least resistance appears to be higher from here. That would also bring even more strength into both the corn and soybean oil markets, as their usage in biofuels would accelerate.

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Comments above are for educational purposes only and are not meant as specific trade recommendations. The buying and selling of grain or grain futures or options involve substantial risk and are not suitable for everyone.

Dana Mantini can be reached at Dana.Mantini@DTN.com

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