Wheats the Matter with the Grains?

Looking at the grain complex, one thing is apparent. Wheat is the worst performer over any recent time period. While we see some strength in beans and its related markets, soy bean oil and soy bean meal. This is reportedly due to palm oil shortages in Asia. Palm oil has no other readily available substitutes so end users have been tapping soybean oil. Corn has not been able to find a reason to show lasting strength.

Wheat is near decade-long lows, and lower if we adjust for inflation. The temptation is to get long some grains as the rallies can be ferocious. If traders do not get the timing right, the markets can bleed against them for prolonged periods of time. Most of the selloffs have been rather well behaved, not knifing through level after level with no warning.

Recently, bullish crop reports looked to signal cycle lows in the grain complex. Most if not all of the rally gains have been given back. The short term bullish news seemed to have been sold by either early-trapped bulls or money still thinking the markets have not seen ultimate lows.

The near term weather for harvest season does not seem to be presenting any issues as far as getting the crops out of the ground. There may not be a reason to fret on that account.

Currencies have mostly been weaker against the dollar with the exception of rallies in commodity currencies like the Canadian dollar and the Aussie trading stronger in sympathy with recent oil strength.

Indeed, dollar haters have been disappointed and thwarted in their bearish stance regarding greenbacks. Dollar shortages globally may see this strength persisting for some time. This will likely keep some pressure on commodities on balance due to dollar pricing.

Market technical suggest rallies may not yet be in the offing. The monthly chart shows a longer-term trend that may have accelerated into the last low. Momentum has picked up but not to extreme levels. The 20-period EMA has seldom been breached and when it has, it has been for a brief time. Price oscillator formations are pointing towards continuation as well. Wheat has driven down from consolidation and further downside may be expected.

Craig Garbie, Market Taker Mentoring, Inc.

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