Wheat Faces Moment Of Truth, Passes First Test
Wheat remains at mercy of outside markets.
Bryce Knorr
Published: Oct 19, 2008
Wheat prices are way overdue for a bounce, that much is obvious. And if ever the market was going to rally, the time is now.
Chicago nearby wheat completed a stunning collapse last week, falling all the way to the trendline drawn off 2005 and 2007 lows before finally rallying a bit on Friday. Normally, this would prompt at least a little short covering rally, but these are hardly normal times. Wheat, like the rest of the commodity complex, remains at the mercy of outside markets and forces. Until the financial crisis calms down — and there are signs it is — wheat rallies could sputter.
The good news is that U.S. wheat is competitive on world markets. While sales are slowing down a bit, they remain well over the rate forecast by USDA for the marketing year. This should at some point lead the agency to lower its forecast of 2008 crop carryout.
Nonetheless, rallies now look like they will be confined to short covering. Hedge funds have built up a sizeable short position in Chicago, and even turned net short in Kansas City. To read Bryce Knorr's complete weekly wheat review, click HERE.
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