From the Desk of Ian Culley @IanCulley
Last week I covered the soybean complex and corn.
As promised, I’ll cover the wheat complex this week, rounding out our coverage of the grain markets.
Let’s dive in!
Before we start, check out this breakdown of the different types of wheat varieties. I love to nerd out on this stuff – anything that involves maps, I’m hooked!
Today I’ll cover the most actively traded US contracts; Chicago Soft Red Winter Wheat (SRW), Kansas City Hard Red Winter Wheat (HRW), and Minneapolis Hard Red Spring Wheat (HRS).
The first two contracts trade on the Chicago Board of Trade (CBOT), with soft red wheat first trading on the CBOT in 1877. Minneapolis spring wheat trades on the Minneapolis Grain Exchange (MGEX).
These different types of wheat derive their names from their growing regions, where they initially come to market, and even their protein levels (hard = higher protein, soft = lower protein).
OK, to the charts…
First up is Chicago wheat:
Chicago wheat flashed a sell signal last week as it closed below 729. As long as it’s below this level, my outlook remains lower toward 590 (2018 and 2020 peaks).
But we might have a bull hook or a bear trap on our hands. Notice momentum has improved since last July despite oscillating within a bearish regime. This suggests a bottoming process is underway.
If and when the bulls reclaim the 730 level, I like taking a long position targeting 800.
To be clear, I have no interest in holding a long contract below the January pivot lows.
You can take the exact same approach in Minneapolis spring wheat.
Here’s the May contract:
If price hooks back above 882, I’m buying strength toward the November pivot high at approximately 1005.
On the flip side, I don’t want to short spring wheat until it undercuts a critical shelf of former lows.
Check out the zoomed-out continuation chart:
I’m bullish commodities and grains. But a breakdown below 860 in Minneapolis wheat represents a clear sell signal.
This dude will abide, selling weakness on a breakdown below that key level, targeting 660. But I’ll play it tight.
While I like buying a potential bull hook in Chicago and Minneapolis wheat, I prefer buying against this week’s low in KC wheat…
Check out the chart:
It all comes down to getting long the strongest contracts.
KC wheat continues to hold above last year’s August lows, while the other wheat contracts have undercut their respective levels. The HRW variety also recently posted fresh multi-month highs – a show of strength other contracts failed to mimic.
The March 1 low of 808’6 marks my line in the sand. As long as it trades above that level, I’m nibbling on a long position with the October 2022 high at approximately 1015 as an upside objective.
On the flip side, I’m prepared to get short on a decisive close below this week’s low with a target at approximately 745 (the 2022 low). But I’d rather short one of the weaker contracts.
“Buy the strongest, short the weakest” is easily some of the best market advice I’ve received over the years.
If anything, I hope you walk away with that guiding principle.
It’s worked for me. And it can work for you too.
COT Heatmap Highlights
- Commercial hedgers hold their largest net-long position for lean hogs in three years.
- Commercials lighten their position in palladium after recently posting their largest net-long position in history.
- And commercials are within eight percent of carrying their largest net-long position for Chicago wheat in three years.