If wheat hasn’t peaked, how high could it go before it does?
And when?
Those are the questions commodity analysis firms are wrestling with now.
Here are answers by two companies with different approaches.
Allendale Inc.
Joe Victor of Allendale Inc. in Chicago thinks there’s little reason to believe wheat has peaked.
“It’s not likely,” he said.
He thinks strong demand and low stocks will lead to another rally in wheat this winter.
The present fallback from the recent peak has nothing to do with the supply and demand situation suddenly becoming less tense.
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“It’s more about the spread of wheat to corn unwinding,” Victor said.
“The fundamentals are still very solid.”
Corn has fallen from its summer peak, while wheat has climbed much higher. Usually wheat tracks the giant corn crop within a certain spread, but the falling price of corn and the rapid rise of wheat has pushed that spread wide. Victor thinks the spread is being reduced, rather than wheat becoming independently weaker.
If corn can catch up on wheat, wheat could take off once more. Where could it get to?
Allendale estimates that the December Chicago wheat futures contract could get back to $9.10 to $9.20 US per bushel, and $9.20 to $9.30 for the March contract.
For those who think the peak has passed, with recently announced pullbacks from buying in places such as India ringing the death knell for the wheat rally, Victor advises caution.
“They’re a little complacent right now,” he said.
As well, there are signs that governments are worried about food supplies.
Russia is said to be considering limiting wheat exports to control domestic price rises and China’s government, worried about its food supplies and prices, is taking several steps, such as limiting ethanol production, releasing government held corn stocks and reducing import taxes on soybeans.
Another round of fear could begin again in such a tight world supply situation.
“We’re just excited about the demand, both domestically and export demand.”
Jeffrey Kennedy of Elliott Wave International in Gainesville, Georgia, said it’s impossible to tell whether the high that was posted in mid-September was the final peak of the wheat rally.
Wheat prices are now lying between Fibonacci resistance levels of $7.83 per bushel and $11.65 per bushel. (Leonardo Fibonacci was a medieval Italian mathematician whose famous “golden spiral” calculation is the basis of a number of schools of scientific, artistic and economic thought.)
If wheat breaks and holds below the $7.83 level, that means the recent high was the peak. If it rises again, the peak could be dramatically higher.
“If wheat peaks sooner rather than later, then I suspect the 800 to 900 handle ($8 to $9 per bu.) will spark a reversal in price,” Kennedy wrote in his Sept. 14 Monthly Futures Junctures newsletter.
“If wheat chooses to top later – most likely in October, considering past seasonal price patterns – wheat could easily trade $11.64 a bu. or better before a tradable top is in place.”
The recent wheat market selloff may be the “blow-off” at the top of the rally, but the next couple of weeks will tell the story.
Farmers thrilled with Kennedy’s idea of almost $12 wheat might not want to base their entire future on wheat, though. His longer-term prediction, based on historical patterns, is for a return of devastatingly low wheat prices.
“Once wheat’s exuberance is exhausted, a selloff will occur that will ultimately push prices back down to less than $2.50 a bu.,” he said, pointing out the post-peak slumps of 1974, 1980 and 1996, all of which dropped to less than $2.50 per bu.
“Moreover, the duration of each of the preceding declines in wheat has lasted no less than three years. So now that my previous wheat forecast has been fulfilled, I’m looking for a top to form in 2007 that will introduce a selloff into the years 2010-2012 when prices will once again trade at $2.50 a bu. or less.”
