03-07-2019: May Chicago Wheat: Exports Competition Depresses Prices

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Point & Figure

Internal Progrm
Third System

Historic Range

Random Chart
Calendar Spread

Level Table
Other Factors

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It's all about exports when pricing U.S. spring (Chicago) wheat. There still is holdover from post WWII thinking as the U.S. as "the world's bread basket", which it clearly no longer is. Competition from Russia, Australia and Europe for export destinations has pretty much buried the U.S. under competition. Trump's tariffs certainly didn't help either, nor did his Agriculture Dept.'s meager government subsidy programs for American farmers. So we find the price of wheat collapsing after staging a triple bottom "line in the sand" during the previous month which clearly now has been severely broken.

Intermarket Analysis

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

Parabolic Chart

May Chicago Wheat:

Parabolic Chart

Nirvana Chart

May Chicago Wheat:

Initial Chart

News Analysis

The story on Chicago summer wheat is very stiff competition for export destinations. These will continue to pressure the 2019-20 marketing year. Goldman Sachs Group lowered its estimate to $4.50/bushel for the next 12 months which was under previous estimates as high as $5.25. The Russian Agriculture Minister said 2019-20 wheat production will be 75-78 million tonnes versus 72.1 million for the current season. Russian wheat prices are trading at $226/tonne, down 1.0% since last week and the lowest since December. Australia's wheat production will rebound to 23.9 million tonnes, up 38% from 2018-19 as planted area increased by 20%. Australia sees wheat exports at 14.2 million tonnes compared to a five year average of 16.0 million tonnes. The European Union wheat production is estimated at 140.8 million tonnes, up 9.4% from last year.

Egypt's state buyer rejected a Romanian wheat cargo after it failed two qualifying tests. The cargo is being held in port. But a final rejection has yet to be issued.

A poor U.S. wheat export inspections number came in at 440,314 tonnes for the week versus estimates that were as high as 750,000 tonnes. Cululative inspections year to date are 16,961,638 tonnes, which is 7.2% below last year's 18,283,000 tonnes. .This is only 58.5% of the USDA's forecast for 2018-19 versus the 5-year average of 71.2%. The top three destinations were Mexico, Yemen, and Indonesia.

Individual state crop ratings show Kansas good/excellent down 2% to 49% but still well above last year's 13% at the same time. Texas was rated 36%, down from 38% last week and Oklahoma was rated 53%, up from last week's 38% after beneficial rains during the week. The lastest USDA supply'demand report projects ending stocks at 1.019 billion bushels versus 1.010 bushels in February. Woeld ending stocks were estimated at 26 7.7 million tonnes compared to 267.5 million last month.

The wheat markets remain oversold technically. A recent collapse in Russian and French wheat offers appears to have been already priced in to wheat futures, but a recovery spark is needed such as having a few million tonnes of wheat sold to China.

Late last July, U.S. Agriculture Sec'y Sonny Perdue announced a $12 billion program to help farmers who are bearing the brunt of President Trump's trade tactics. The package included a market facilitation program, a food purchase and distribution program of surplus commodities, and a trade promotion program to provide private sector assistance to new markets. Farmers received the news of this with mixed opinions. The general feelings is that tariffs are not the answer. Most farmers prefer trade over aid, but they support relief if it will help some farmers provide assurances to local bankers and get through another planting season. The plan favors wheat farmers more than corn farmers. Some farmers say what the Government is giving them is almost an embarrassment.

Spring wheat is grown in nothern states where most of the crop has avoided debilitating drought. Yields in the past year were down 13% over the prior year. Of the six highest wheat producing states, Idaho, Minnesota, Montana, North Dakota, South Dakota, and Washington, 64% of the crop overall is rated good to excellent versus 33% during the previous year.

News that President Trump and Premier Xi may meet on March 27th is viewed as positive for stock and commodity markets around the world.

A summary of news suggests a big contrast this season to last season's threates to crops acorss Europe and the Black Sea and Australia, raising hopes that the time was right for the U.S. to begin selling lots of wheat to a hungry world. Yields overseas turned out to be a lot better than expected. The market for U.S. wheat appeared even then to be on the verge of life support. Competition from Russia is supported by weak rubles, unlike the previous season when it was pushed out of the market as supplies there thinned out. Austalia is recovering from El-Nino induced losses. The USDA is lacking some reports due to the recent Government shutdown here, but there are no drought fears this year. There may be some support from damaged U.S. fields due to flooding and ice.

Technicians noted in February that a new triple bottom on charts at $5.20/bushel for spring wheat could represent "a line in the sand" for support which clearly has subsequently been severely broken.

Point & Figure Chart

895.0|                                                                  T  3/ 4
     | CBT - May-19 Chicago Wheat, 5000 bu., c/bu. Cm.=0.60  Lim.=21.0
     |  X X
     |  XOXO
     |  XOXO
     |  XOXO
     |  XOXO
     |X XOXO
     |XO   O          X     XO
     |X    OX X       XO    XO
     |X    OXOXO      XO    XO
     |X    OXOXOX     XO    XO
     |     OX  OXO    XOXO  XO
     |     O   OXOX X XOXO  XO
     |         O OXOXOXO OX XO
     |           OXOXOX  OXOXO
     |           OX  O   OXO O
     |           OX      O   O
     |           O           O
     |                       O              X
     |                       OX             XOX
     |                       OXO            XOXO
     |                       OXO            XOXO
     |                       OXOX           XO O
     |                       O OXOXO        X  O
     |                         OXOXO    X   X  O
     |                         O OXO    XO  X  O              X
     |                           O O    XO  X  O              XO
     |                             OXO  XO  X  O              XO
     |                             OXO  XO  X  O        X     XOX
     |                             OXO  XO  X  O        XO    XOXO
     |                             OXO  XOX X  O        XOX   XOXO
     |                             O OXOXOXOX  O  XO  XOXOXO  X  O
     |                               OXOXOXOX  O  XO  XOXO O  X  O
     |                               OXO OXOX  O  XO  XOX  OX X  O
     |                               O   O O   O  XOX XOX  OXOX  OX
     |                                         OXOXOXOX    OXOX  OXO
     |                                         OXOXOXO     O O   OXO
     |                                         OXOXOX            OXO
     |                                         OXOXO             O O
     |                                           OX                O
     |                                           OX                O
     |                                           O                 O
     |                                                             O
         1111111                     111         1                1
The above chart is giving a conventional sell signal.

Cyclical and Seasonal Factors

We are headed toward a cyclical high and are in a seasonal down 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 Summer Wheat (blue lines = successful trades, red, unsuccessful): (Always in the market.)


Third System Confirmation

Our third system is working on a longer-term sell signal. (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 $1,375. 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. However, this conclusion is suspect for reasons set out below. Also, be aware that the CFTC still has not updated their data to within three weeks before the present, thanks to the Trump Shutdown.

Commitment 2

Interpretation of a Different Site Below (Their trader categories vary from ours):

Commitment 3

Starting with this article, due to advice from readers, we will try to produce this section with trader categories that match the conventional ones. By categorizing differently, we attempted to emphasize that it is the direction of recent movement of the most successful category that is the key to predictability as to what happens next, not necessarily where those traders stand overall with respect to long or short positions. We will concede that this approach may not have given the desired result, so below is a "re-do" using the placement of certain traders into the more conventional categories. Using the chart below, our conclusion as to what each category is doing would have been the same, but not which category has the best track record. In this version, large speculators have the best track record and are getting increasingly-short. The ultimate conclusion for the indicator is reversed. We likely use this method of assigning traders into more conventional categories in future reports. Both systems are shown for comparison, but we will drop the first one in future reports.

Volatility / Probable Range

FB 1 FB 2

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

Range/Volatilitiy Chart

Possible Future Prices

Random Chart

Option Recommendation

Our option trade recommendation is to Buy (1) Chicago Wheat September 490 Call and Sell (1) Chicago Wheat September 470 Call @ 7-1/8 (7.125) to the Sell Side or Greater.

o 1 o 2 o 5

o 3

o 4

Calendar Spread

What the May - Dec. calendar spread suggests to us is that buying the near contract and selling the far one is at most times profitable, which we think is a sign that these futures may go up in the long run. The best time to enter or leave the above spread is when it is at -22.00 or narrower buying the far as prices are rising and then selling the near, and exiting or entering when it is at -31.00 or wider selling the far as prices are falling and then buying the near. At this time, we appear to be at the buy the near, sell the far point.

Level Table:

Level Table

The path of least resistance is up by our main criteria but down by Steidylmere's "Market Profile" chart..
645.0|                                                                  R  3/ 5
 CBT - May-19 Chicago Wheat, 5000 bu., c/bu. Cm.=0.60  Lim.=21.0
     |ZZ[[   <<<
425.0|-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=-0.055
                                     1 1 1 1 1 1                      
       3 3 4 4 5 5 6 6 6 7 7 8 8 9 9 0 0 1 1 2 2 1 1 2 2 3           3
       0 2 0 1 0 1 0 1 2 1 3 1 2 1 2 0 2 0 2 0 1 0 1 0 1 0           0
       8 1 5 9 3 7 1 5 9 6 0 3 7 1 5 9 3 6 0 5 9 4 8 1 5 4           5

Other Factors

Multiple Chart Indicators Summary
Multiple Chart Indicators Summary

Here's an intraday chart for a previous day ( 3/05 ).

Intraday Chart

                 Risk Versus Opportunity Report

                   WK9     May Chicago Wheat

                      High Price:  477.3
                   Current Price:  455.5
                       Low Price:  410.9

                            Risk: -0.098
                     Opportunity: -0.201

                    (O/R) Ratio =  2.046

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 - 3
Place 10 Chicago Wheat on a Buy Watch with stoploss @ 18-1/2 below the get-in point when recent price is represented as "455-1/2".