The blastoff of most crop prices this fall has drawn attention and many questions.
“I can tell you that I’m watching it closely today,” said Oklahoma State University wheat market analyst Kim Anderson Oct. 30.
Everyone on the crop selling side has enjoyed the sight of prices racing up, but analysts like Anderson wonder when it will end. Price charts are beginning to ring alarm bells for technical analysts.
And if the surge ends soon, will it be with a bang or a whimper?
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“It looks like the market’s built a double top,” Anderson said about the Kansas City Board of Trade hard red winter wheat contract.
A double top is a formation that appears on bar charts of market prices. It looks like two equally high marks pointing up at the end of a long run-up in prices. A double top is bad news for prices because it often signals a sharp drop.
It’s too soon to tell whether that double top has formed, which is why Anderson is watching the market closely. But if the price fell below $5.20 US per bushel on the KCBT December contract on Oct. 31, Anderson expected them to fall toward $5. If the price stayed above $5.20, he expects prices to wander in a zone between $5.20 and $5.60.
Until $5.60 is broken, the market won’t begin another leg up in prices, and a downtrend won’t form unless the price falls below $5, Anderson said.
Randy Strychar, the oats analyst with Ag Commodity Research, thinks current futures prices are hard to justify. Cash prices, which are what farmers receive in the country, have not followed the futures prices skyward, so the only way to understand the sharp recent rise is to attribute it to the commodity funds. When they pile on, a commodity’s price can soar, but when they pull out it can plunge.
“All the charts say (December oat futures contract at the Chicago Board of Trade) is overbought,” said Strychar.
He said it’s hard to tell when the funds will pull the pin.
“I’m expecting a correction, but I’ve been saying that for two weeks and it hasn’t happened yet.”
But neither Strychar nor Anderson believe the commodities they follow are in for a big slump.
Anderson thinks wheat prices will move sideways for some time, while the market watches conditions in Argentina, Australia and the U.S. hard red winter wheat belt before deciding whether to make a big move higher or lower.
Strychar said oats futures prices will probably fall, but stay relatively firm in the cash market, where they did not rise so quickly. They will weaken on falls in the Chicago futures price, but not so dramatically because they have less of a gain to give up.
Strychar expects to see oats prices rise above present prices later in the winter, but in the meantime there will be a setback as the market consolidates.
