Technically Speaking

Have US Wheat Markets Finally Turned the Corner?

Dana Mantini
By  Dana Mantini , Senior Market Analyst
This is a daily chart of KC July wheat futures showing the potential bullish chart pattern. (DTN ProphetX chart by Dana Mantini)
KANSAS CITY JULY WHEAT FUTURES:

The wheat markets have for the last several months been choppy and trading down toward season lows. While U.S. wheat export sales and inspections are exceeding last year at this time, Russian's aggressive stance on wheat exports in the past year, higher production from both Argentina and Australia, and the recently surging U.S. Dollar Index have combined to pressure wheat. On Tuesday, all three wheat markets rallied to close higher, and in the process, each had a bullish engulfing line reversal signal. That Japanese candlestick pattern requires the market to close higher the following trading day to touch off a buy signal. Although, the Wednesday market is far from over, as we write this, KC July wheat is up 18 and appears to have broken out above not only the two-month long sideways trade pattern, but above the 100-day moving average. A similar close would confirm that buy signal.

Adding to the technical look of wheat is the fact that managed money funds are thought to be holding a sizable net-short position in Chicago estimated to be 100,000 contracts and in KC nearly 40,000 contracts. Such a positive technical close might encourage funds to buy in those shorts. On another positive note, hard winter wheat areas in the past few weeks may have suffered some winterkill damage, with the extent of any damage yet to be determined. Also, Russia's cap on second-half wheat exports is set to begin on Feb. 15 and that would likely be a supportive factor for U.S. hard wheat demand at some point.

CHICAGO MARCH CORN FUTURES:

Corn is currently on a nice rally based on the ongoing warmth and dryness in both Argentina and southern Brazil, and on the slow pace of Brazil soy harvest, threatening the timely seeding of the second and larger safrinha corn crop. Also, supporting corn has been the insatiable appetite of large speculators for buying corn.

March corn was able to chew through what was at one time solid chart resistance ranging from $4.75 to $4.90. Now that the market has busted through that level, where can it go next? The next level of resistance looks to be the May high of $5.08 1/4. That is still another 12 cents higher than we are trading as this is written. A run above $5.08 1/4 is likely to meet huge chart resistance in the $5.10-$5.20 area. Without a full-blown drought in Argentina and/or Brazil, the market will have a rough time exceeding this level. Also, noncommercial traders are adding to what is close to being a sizable 400,000-plus contract net-long in corn. The last time that happened, in 2022, the market had a subsequent swift and decisive tumble. That is not a prediction, just something to keep in mind as this corn rally extends.

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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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