Wheat: Over $8 by year’s end?

COT data

Looking at the charts below, you will see some of the technicals weakening from last week’s price action. Take a good look at the weekly chart where you will see the Producers (true commercials) are adding to their net shorts and the Swap Dealers and the Manage Money traders are adding to their net longs. That is a good sign that we could see higher prices moving forward as it reflects rising OI and the posturing by the “big money” for prices moving higher. The COT report you are looking at is the newer Disaggregated COT; the old legacy report is nowhere near as transparent. And with all the games being played in the markets today by “big money,” you need greater transparency.

Commercial Net Tracker instructions:
This form tracks the Commitment of Traders (COT) data for the commodity futures market. This form "looks" at the most recent five weeks of COT data and provides visual indications of the data. A. If the current value is at a 12-month low, the cell will display a red/burgundy background. B. If the current value is at a 12-month high, the cell will display a green background. C. If the current value went from net negative to net positive, the cell will display a blue background (indicating a bullish condition). D. If the current value is both a 12-month high and also went from a net negative to a net positive, the background will be green. You should view the data with green backgrounds to determine if they also went from net negative to net positive.

Proceed to Page 3 for this week's detailed fundementals charts...

Fundamentals

Wheat prices fell back from their recent four-month high and remain well below the two-year high from August. Wheat prices in early August jumped to a two-year nearest-futures high of $8.41 a bushel on concerns that the worst Russian drought since record-keeping started 130 years ago would limit global supplies. Price has since corrected lower by over $2.23 a bushel (27%). Bearish factors include:

1. The USDA’s Dec. 10 unexpected hike in its 2010-11 U.S. wheat carry-over estimate to 858 million bushels from 848 million and the hike in its 2010-11 global wheat carryover estimate to 176.72 MMT from 172.51 MMT.
2. Reduced foreign demand for U.S. wheat after the USDA reported that U.S. wheat inspected for export for the week ending Dec. 9 dropped 15% from the prior week.

Bullish factors include:

1. Concerns that excessive rains in Australia, the world's third-largest wheat exporter, will cut its production and diminish global wheat supplies.
2. Speculation that more U.S. wheat may be used for animal feed as record U.S. ethanol production absorbs corn supplies.

Weekly U.S. wheat exports (week ended Dec. 9): 504.1 MT; cumulative 2010/11 (June-May) all wheat exports: +36% y/y.