Technically Speaking

Kansas City spot May and new-crop July wheat futures have been on an upward path since breaking out of a two-month sideways trading range. Granted, there are weather issues in both the U.S. southwestern Plains and in eastern Ukraine and southern Russia where conditions have been too warm and much too dry. In addition to that, global wheat is facing a shortage in India, the need for potential imports and dryness in the Canadian Prairies.

One of the primary reasons the wheat rally has been so impressive is the extent of the combined net short in KC and Chicago. Undoubtedly, mid to late last week funds were busy buying in some of those wheat shorts. As of Tuesday, they remained net short 75,000 contracts in Chicago and another 48,000 contracts in KC. Those totals are surely much lower to begin the new week as short covering continued late into last week. In Chicago, the CFTC report showed funds had reduced the Chicago short by 20,000 contracts, but KC is still sporting a large net short.

Undoubtedly, the Kansas City market is on a strong move higher. However, the market does appear to be getting a bit overdone, at least short term. Some rain is headed for southern Russia in the coming week, which could put some pressure on wheat. Between Sunday night trade was near $6.60 and the $7 level, there is some formidable chart resistance, which should slow down the bullish momentum. However, should the dryness in Russia extend deep into May, we may not have seen the top in wheat markets.

Like Kansas City wheat before the breakout, new-crop December corn has been trading within a tight 20-cent range for the past two months. December has traded between $4.60 and $4.80. Momentum indicators are neutral to positive but give no hint as to which way this market could break out of that range. A solid rally and close over $4.80 or under $4.60 will likely dictate the next move for new-crop corn. If I had to make a guess, the period ahead is typically one of seasonal strength into June, so my guess would be to the upside. On a bullish note, U.S. corn exports are running ahead of expectations and funds remain short an estimated 240,000 contracts as of last Tuesday. Perhaps the big negative overhanging the market is the still comfortable 2.5 million metric tons ending stocks level expected.

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Comments above are for educational purposes only and are not meant as specific trade recommendations. The buying and selling of commodities, 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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