11-18-2018: March Kansas Wheat: Global Supply Adequate

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Point & Figure

Internal Progrm
Third System

Historic Range

Random Chart
Calendar Spread

Level Table
Other Factors


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A period of excessively wet weather in some of the plains states led to beliefs that harvest delays and quality issues would plague winter wheat. As time moved on, some these concerns were alleviated by drier weather, a bountiful harvest, and a global supply situation which left wheat available from many sources. The rather innocuous news situation now leaves wheat in a more normal production situation coming down off of excessive highs where fears drove up futures and now there is a convergence of reality and cash prices with futures. Given current supply/demand situations with no shortages and some carryover, we see a downtrend trend potential continuing, although there are some seasonal aspects which are supportive to bottoming prices.

Intermarket Analysis

We fed Kansas wheat, Chicago wheat, and soybeans into a neural network to get the following result:

Parabolic Chart

March Kansas Wheat:

Parabolic Chart

Nirvana Chart

March Kansas Wheat:

Initial Chart

News Analysis

In 2013, CME Group, Inc. acquired the Kansas City Board of Trade for $126 million, gaining control of a wheat-futures market that was the largest behind the CBOT's own Chicago summer wheat market. We are a bit "conflicted" now in placing orders whether "Kansas Wheat" will be understood, or whether we should specify "hard, red, winter wheat."

Russia is expanding its plantings of wheat in its 2018-19 season. Total winter wheat plantings will be at 18.2 to 18.4 million hectares, versus 17.8 million last year. China has cut the state minimum wheat purchase price for the second consecutive year for 2019 as part of its effort to reduce stockpiles held by the government. The floor price for wheat purchases will be down approximately 3% lower than the previous year in 2019. The Chinese Government stockpiles wheat from farmers when market prices fall below the minimum purchase price. Prices are set based upon production cost, market supply and demand, and also global grain prices.

French soft wheat harvesting is nearly complete.

The Buenos Aires Grains Exchange reported the Argentine wheat harvest at 15% complete, versus 11.3% last week with comments that losses to the wheat crop in central regions are possible. However, rains last week did help grain fill for wheat in the southern province of Buenos Aires. Export sales of all types of wheat

from the U.S. are expected to come in this week at near 350,000 to 650,000 tonnes.

Speculative traders with a net long position are believed to be slowly flipping over their positions to short positions.

Delegates from the U.S. agriculture industry were in Cuba recently for a Cuba-U.S. Agriculture Business Conference. There was much interest from the Cuban Ministry of Agriculture, Ministry of Foreign Affairs, and the Cuban media. About 30% of C uba's 42,000 square miles is currently used for farming, but Cuban farmers do not have the latest technologies, equipment, and inputs to reach their full potential. Food production in Cuba done through cooperatives is not sufficient. Due to climate, no wheat is grown there commercially. Much of the food for Cuba's 11 million people and 4 million annual tourists must be imported, including an estimated 30 million bushels of wheat. Much of their grains come from Argentina, and it takes a long time to get there, affecting the quality. Rice imported from Japan can take up to 5 months to arrive.

Cuba has to pay for food product imports from the U.S. up front, while other types of goods can be financed until the sale arrives in Cuba. Congress is considering extending credit terms to Cuba.

Rains delayed some harvest activity in Kansas earlier in this year.

At the beginning of 2018, the U.S. Dept. of Agriculture was estimating an all-time high for wheat carryover and surplus wheat around the globe. Kansas wheat had a rough year, suffering drought and freeze damage, but allowed that wheat to be higher in protein. Wheat harvested across Kansas was reported to be 12 to 13% for protein content, with some truckloads reporting as high as 15%. This allows Kanas grain elevator operators to mix the higher protein wheat with lower protein wheat from earlier harvests to wind up somewhere near 12% protein, which brings better prices because it can be used to make bread. Average protein content last year from Kansas was around 11.6%.

There are wide spreads between Kansas forward and current contracts, partly due to a CME Group "variable storage rate system." The idea behind the VSR is to get wheat into strong hands, forcing end users to bid up the basis, and in theory getting cash and futures closer to convergence at delivery. In the soft red winter wheat market, the December - May carry dropped from 34 cents to 13 cents over the past two weeks. The movement in HRW wheat hasn't been as dramatic. Deliverable locations in Kansas firmed as much as 20 cents since September.

Wheat is not in short supply in the U.S. for the foreseeable future. Funds are still a little long HRW wheat, supported by a large recent purchase from Egypt, a big importer. But Russian costs to Egypt are still about 25 cents per bushel cheaper, with supplies out of the Black Sea starting to run thin. Snow over parts of the Southern Plains in the U.S. could hurt planting and emergence as the seeding window closes. Wet conditions in Kansas raised questions about the USDA's projections for a 51 million acre harvest in Kansas for 2019, 2.7 million more than projected earlier. USDA projects ending stocks for 2018 to end up around 75 million bushels.

An El Nino drought devastated wheat production in Australia. France had a dry fall although precipitation appears to be improving. Russia looks better for rain but Ukraine may stay dry. Some see December as a seasonal turning point for winter wheat crop prices.

As of this writing, another snowstorm is heading through the Dakotas, providing more headwinds for the slow harvest there as traders wait for more news on exports. The grain market in Europe is very uncertain subject to outside markets, trade talks with China, and the Brexit situation.

Based upon the current global supply/demand situation, we think news favors a slow deterioration in hard red winter wheat prices.

Point & Figure Chart

1210.|                                                                  T 11/16
     | KCBT- Mar-19 Kansas Wheat, 5000 bu., c/bu.  Cm.=0.60  Lim.= 6.0
     | XO    XO      X
     | XOX X XO      XO
     | XOXOXOXO      XO
     | XOXOXO O      XO
     | XOXO   OX X   XO
     |O OX    OXOXO  XO
     |O OX    OXOXOX XO
     |  O     OX  OXOXO
     |        OX  OXOXO
     |        OX  OXOXO
     |        OX  OXOXO
     |        OX  OXO O
     |        OX  O   O
     |        O       OX
     |                OXO
     |                O OX
     |                  OXO
     |                  OXO
     |                  OXO
     |                  OXO
     |                  OXO
     |                  O OX
     |                    OXO
     |                    O OXOX XO
     |                      OXOXOXOX
     |                      O OXOXOXO
     |                        OXOXOXO
     |                          O OXO
     |                            OXO
     |                            O O      X
     |                              O      XO
     |                              O      XO
     |                              O      XO
     |                              OX     XO
     |                              OXOX   XO
     |                              O OXO  XO
     |                                OXO  XO  X     X X
     |                                OXOX XO  XO  X XOXO
     |                                OXOXOXO  XOX XOXOXO
     |                                O OXOXO  XOXOXOXOXO
     |                                  OXO O  XOXOXO OXO
     |                                  O   O  XOXO   OXO
     |                                      OX XOX    OXO
     |                                      OXOX      OXO
     |                                      O OX      O O
     |                                        OX        O
     |                                        O         O
                          111                 1
The above chart is giving a conventional sell signal.
Note: Zenith does not use continuous contracts. It performs quantum jumps to roll over to a forward contract, which adjustment shows how past prices would look to a trader doing the same thing, i.e. includes storage fees. But while we think this is better for predictive purposes, historical prices are not accurate for the forward contract earlier than the point of the jump.

Cyclical and Seasonal Factors

We are headed toward a cyclical high and a seasonal up period.

Cyclicals Cyclicals Seasonals

Internal Program

Our best-performing internal program is "Pattern". It is giving a sell signal.

Internal Printout 1 Internal Printout 2

Results of "Pattern" for Kansas Wheat (blue lines = successful trades, red, unsuccessful): (Always in the market.)


Third System Confirmation

Our third system has triggered a sell signal. Due to a problem with the graphics, the down arrow is not showing but it occurred on or about August 6th. (Note, disregard the year on the chart. Our regular readers know this is not a Y2K-compliant system, but it still works.)

Third System


The point value is $50. Initial margin on a single contract is $1,430. Use of options is not advised.

Historic Range

Scale trade buyers are entering the market for the long term in this price range.

Historical Chart

Commitment of Traders

Commitment 1

In the chart below, the yellow line is the futures price, read on the right axis. All other colors are read on the left axis. Blue is small speculators. Red is large speculators. Green is commercials. Commercials with the best track record are getting increasingly-long.

Commitment 2

Volatility / Probable Range

FB 1 FB 2

The average volatility shown below suggests that a change in major trend to up is imminent at a volatility low point.

Range/Volatilitiy Chart

Possible Future Prices

Random Chart

Option Recommendation

Our option trade recommendation is to Buy (1) Kansas Wheat March 470 Put and Sell (1) Kansas Wheat March 490 Put @ 7-3/4 to the sell side or greater.

o 1 o 2 o 5

o 3

Calendar Spread

What the Mar. - Sep. calendar spread suggests to us is that buying the near contract and selling the far one is at most times not profitable, which we think is a sign that these futures may go down in the long run. The best time to enter or leave the above spread is when it is at -0.26 or narrower buying the far as prices are rising and then selling the near, and exiting or entering when it is at -0.39 or wider selling the far as prices are falling and then buying the near. At this time, we appear to be at the sell the far, buy the near point.

Level Table:

Level Table

The path of least resistance is down.
670.0|                                                                  T 11/15
 KCBT- Mar-19 Kansas Wheat, 5000 bu., c/bu.  Cm.=0.60  Lim.= 6.0
     |BBBBCCCCCC   <<<
470.0|-A-B-C-D-E-F-G-H-J-K-L-M-N-O-P-Q-R-S-T-U-V-W-X-Y-Z----|----|-- TPO=-0.286
       1 1 1                                       1 1 1 1           1
       1 2 2 1 1 1 2 3 3 3 4 4 5 5 6 6 7 7 8 8 9 9 0 0 0 1           1
       1 0 1 0 1 3 1 0 1 2 1 2 1 2 1 2 1 2 0 2 0 1 0 1 3 1           1
       7 1 5 2 7 1 4 1 5 9 3 7 1 5 1 5 0 4 7 1 5 9 3 7 1 4           5

Other Factors

Multiple Chart Indicators Summary
Multiple Chart Indicators Summary

Here's an intraday chart for a previous day ( 11/15 ).

Intraday Chart

                 Risk Versus Opportunity Report

                  KWH9    March Kansas Wheat

                      High Price:  522.75
                   Current Price:  503.25
                       Low Price:  463.25

                            Risk: -0.079
                     Opportunity: -0.162

                    (O/R) Ratio =  2.051

Overall Recommendation

Decision Weighting Factors
FactorsWeighted Points
Inter-Market Analysis + 1
Parabolic Chart - 1
Nirvana Chart - 1
News - 1
Point & Figure - 1
Cyclicals + 1
Seasonals + 1
Internal System 1 - 1
Internal System 2 0
Third System - 1
Historic Range + 1
Commitment of Traders + 1
Range/Volatility + 1
Level Table - 1
Other Factors - 1
Total - 2
Place 10 March Kansas Hard Red Winter Wheat on a Sell Watch with stoploss @ +19.25 below the get-in point when recent price is represented as "503.25".