Bullish outlook Charts show a potential turning point, but corn will have to stabilize
Even after a long, long slide, it’s still hard to find reasons to turn bullish on wheat.
A good-sized, good-quality crop is growing in North America and elsewhere, and the underlying price leader for grain shows few signs of wanting to reverse its downward course.
“Corn continues to set the overall framework for grain prices,” said Frontier Futures analyst Austin Damiani.
“We can look at spring wheat or wheat in general, and even if we’re bullish (about those crops in isolation), prices can still go down if corn continues to go down.”
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Chicago December corn futures were trading for around $5.40 per bushel near the end of June but have since slid to about $4.65.
At the same time, spring wheat futures have slid less, from $7.90 to $7.50.
Though pressured down by corn, wheat has received some support from Chinese demand, reduced forecast for the Russian wheat crop and potential quality problems in the U.S. soft red wheat crop, which was rained on at harvest, and the European wheat crop which is enduring a heat wave hastening its maturity.
Damiani said cash spring wheat prices are now about equal to hard red winter wheat cash prices, which is helping stoke demand and buy sales.
“We’re already at the point where we’re low enough where end users, particularly domestic ones, are being incentivized to switch to spring wheat at the expense of hard red winter wheat,” said Damiani.
He said hard red spring wheat might be able to recover some of the ground it has lost to hard red winter wheat, over which it normally carries a premium, if North American millers and export markets start snapping up cheap spring wheat.
However, corn still rules the roost.
“It’s going to be a lot easier to rally if corn can stabilize,” he said.
Mike Krueger of the advisory service The Money Farm agreed.
“The biggest problem wheat has is corn,” said Krueger.
“You take corn from seven bucks to below five dollars and you have people talking about $4 to $4.50 as a possibility, and if you get a big U.S. corn crop in, that limits where wheat can go.… You can’t take wheat too far from corn.”
Damiani said demand for wheat is good now, with China making aggressive purchases, but the sheer weight of the corn slump is stopping the wheat rally.
Winnipeg technical analyst Harold Davis thinks wheat has a good shot at rallying now because its chart pattern is showing a possible “W” forming, something that has previously preceded a nearby price bottom.
“Recent price declines might seem dramatic and discouraging, but they’re about normal for wheat,” wrote Davis in a July 30 analysis.
Wheat prices in Saskatchewan tend to make $1.25 per bushel retreats, which is about what has occurred in recent weeks. Chicago wheat futures also seem to be hitting a possible terminal stage of a retreat.
“A good crop has already been priced into the market and is old news,” wrote Davis, the main author of Prairie Crop Charts.
“Looking forward, wheat is likely to make a stand close to current levels. If it succeeds, the tide should turn up and a new bull emerge. If it fails, the optimism of recent years will be dealt a serious blow.”
