Is Wheat Bullish or Just On a Price Bounce?

What Happened

Wheat prices, unlike the corn and soybean prices, were trending lower into mid-January. This is the opposite direction of what might be expected when corn and soybean prices are rallying. Typically, we see corn, soybeans, and wheat move somewhat in tandem. However, expectations for sluggish wheat export activity for the U.S. and a lack of speculative buying kept wheat prices defensive early in the new year.  

Since mid-January, the price trend has changed. Wheat futures have gained nearly 60¢, with the market focusing attention elsewhere in the world — mainly Russia. Approximately 35% of Russia’s crop is considered poor. Considering Russia’s large crops and exports in recent years, the big-picture perspective is changing. Some believe Russia’s current crop may be the smallest in well over a decade.

Why This Is Important

A smaller Russian wheat crop implies the world may have to search for supplies elsewhere. Speculative buyers are beginning to show interest in wheat, but have a long way to go to catch up to managed money positions in corn and soybeans. As of Feb. 4, the Commodity Futures Trading Commission’s Commitment of Traders report indicated managed money (large traders) were net short (sold) 90,442 wheat contracts. This is 20,342 fewer than the week before. Large traders were net long (bought) 364,217 corn contracts and long 57,029 soybean contracts. One view suggests if managed money in wheat follows the same path of corn and soybeans, wheat prices could continue to rally. This makes the fundamental and technical price pictures look supportive. 

Yet, wheat futures can disappoint. Time and time again, rallies have failed. Wheat is considered a world crop, and as world conditions change, so do wheat prices. To that end, preparing for both a price rally and price decline is paramount to manage future risk and opportunities. Forward contracting (or selling futures) along with buying calls, put purchases, or bear put spreads are strategies to protect against lower prices and allow you to participate in a price rally. The speed at which price declines can occur is a concern to manage. Planning and executing for market moves are key to managing what you can control.

What Can You Do?

Now is the time to have discussions with those who can help you take action. Don’t wait until the market falls apart and then ask what you can do. Stay ahead of a potential price decline. Ask critical questions and be sure to understand the strategies you choose before entering. Once in a position, continue to communicate and adjust as necessary. Marketing is never easy. Good habits, organization, and communication will help you navigate the decision-making process.

Find What Works for You

Work with a professional to find the strategy or strategies that are best suited for your operation. Communication is important. Ask critical questions and garner a full comprehension of consequences and potential rewards before executing. The idea is to make good decisions for the operation and less emotionally charged responses to market moves, which are always dynamic.

Editor’s Note: If you have any questions on this Perspective, feel free to contact Bryan Doherty at Total Farm Marketing: (800) 334-9779.

Disclaimer: The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Individuals acting on this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report. Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Examples of seasonal price moves or extreme market conditions are not meant to imply that such moves or conditions are common occurrences or likely to occur. Futures prices have already factored in the seasonal aspects of supply and demand. No representation is being made that scenario planning, strategy, or discipline will guarantee success or profits. Any decisions you may make to buy, sell, or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to Total Farm Marketing. Total Farm Marketing and TFM refer to Stewart-Peterson Group Inc., Stewart-Peterson Inc., and SP Risk Services LLC. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of the National Futures Association. SP Risk Services, LLC is an insurance agency and an equal opportunity provider. Stewart-Peterson Inc. is a publishing company. A customer may have relationships with all three companies. SP Risk Services LLC and Stewart-Peterson Inc. are wholly owned by Stewart-Peterson Group Inc. unless otherwise noted, services referenced are services of Stewart-Peterson Group Inc. Presented for solicitation.

About the Author: With the wisdom of 30 years at Total Farm Marketing and a following across the Grain Belt, Bryan Doherty is deeply passionate about his clients, their success, and long-term, fruitful relationships. As a senior market advisor and vice president of brokerage solutions, Doherty lives and breathes farm marketing. He has an in-depth understanding of the tools and markets, listens, and communicates with intent and clarity to ensure clients are comfortable with the decisions.