What will the peak of the wheat market look like?
The frustrating answer is that you will only be able to recognize it after it has occurred, and prices are lower.
That’s the eternal frustration of the farmer and every other seller who wants to sell his crop at the top. By the time you can see the top, it’s in the rear-view mirror and you’re going down.
But marketing experts say farmers should look for certain signs of a peaking market, and a lot of those are evident in the wheat market now.
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“We may have nearly reached the high on this wheat market,” said Kansas State University analyst Mike Woolverton.
“We may be starting to go over the top and go down a bit,” Woolverton said on the morning of Sept. 12, just before the late week selloff that knocked wheat prices down.
By Sept. 17 wheat prices had regained much of the lost ground, but the relatively clean upward sloping line that has run since mid-August had been broken by the sudden, possibly temporary reversal.
Woolverton said he has been urging farmers to sell as much wheat forward as they can now, because he is worried that prices can’t hold up too much longer now that they are in record territory.
He’s noticing fundamental news that suggests some wheat demand may evaporate, such as the political uproar in India about imports of foreign wheat, and the possibility of that country scaling back its imports this winter.
The high wheat prices are occurring as farmers in the U.S. Great Plains states prepare their seeders for fall planting, which should cause many to plant extra wheat acres this month.
“I expect that to happen,” said Woolverton.
“I suspect it’ll be enough that it’ll take some of the air out of the price. I think we’re going to start seeing some wheat prices come down.”
Also, if Australian and Argentine crops are not as dreadfully poor as the market appears to expect, wheat prices could be hit.
Woolverton warns that a decline from a peak won’t be an orderly process.
“Prices can fall back pretty fast, because people rush for the door and the speculators not only get out of positions they take the opposite positions – they go short – and that brings the market down very fast,” said Woolverton.
Winnipeg technical analyst David Drozd said peaking commodity markets tend to leave a V-formation behind them, with a steady rise upward and a quick fall down.
“Like any other bull market in grain, they make V-tops, straight up, straight down,” said Drozd.
Numerous commodities have made V-type formations around their peaks. Earlier this summer, corn created one on the charts, with a fairly steady rise until mid-June, then a fairly steady decline until the end of the month.
While corn was rising in value, almost all the news about corn was bullish. When it turned down, the news turned bearish.
Contrarian analysts, who are common in technical analysis, tend to believe that news follows the markets, not the other way around. In other words, the market doesn’t react to news stories, but news is generated by the actions and mood of the marketplace.
Drozd thinks wheat will have peaked when buyers stop buying, regardless of what the news on the wires said about supply and demand conditions.
“It’s not going to have a whole lot to do with whether Australia or Argentina has or has not a crop, it’s just a matter of when does money stop pouring in,” said Drozd.
Woolverton said something in the real world of supply and demand will change the fundamentals underlying wheat prices.
But even if that change is reported in the news, it’s hard to tell when a news item reveals a reversal of a previous trend.
“Usually it’s something that seems relatively insignificant at the time,” said Woolverton.
That’s why he’s recommending farmers sell or price whatever they can now.
“I think winter, spring and next harvest time we’re going to see wheat prices much lower than they are today,” said Woolverton.
