Flour Power

Wheat futures were up across the board this week with a strong move that broke through several technical resistance levels. July KC Wheat futures were trading around $6.50 Friday morning, up 11 percent on the week. July Chicago Wheat futures were trading near $6.25 and up 10 percent for the week as well. The wheat market has been stuck in the doldrums since the first of the year trading sideways to lower, and the rally this week moved prices back to where they started the year. Fundamental reasons for the move carry the triple threat of supply worries, increased demand potential and fund traders caught out of position.

First the fund position: According to the Commitment of Traders (COT) report as of April 16, the managed money (funds) were short a combined 145,634 contracts of KC and Chicago Wheat, which is not a record short position, but would classify as heavily short and be enough to get a nice spike in prices from short covering if a small fire were lit.

The demand side consists of India having to import wheat this year. India is generally self-sufficient producing enough wheat that they are not typically huge importers. This headline has been in and out of the news since January and one would want to be careful chasing the market based on this alone. Perhaps it is closer to being confirmed than what it was, but it has the feel of an excuse to explain the move.

The supply concerns are probably the most tangible of fundamental concerns, as the hard red wheat in the U.S. Plains is under serious stress where a lot of wheat went backwards in a big way last week with warm temperatures, windy days and a lack of rainfall, for a crop that is by and large three weeks ahead of schedule from most folks I talk to. So, the potential for an early weather rally was there. Rain did fall this week and there is potential for more this weekend. Coverage of the rainfall didn’t catch everybody, though, and a lot of the western plains in Kansas and south were left on the outside looking in.

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