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4506 Prime Parkway, McHenry, Illinois
(June 27, 1997) WHEAT: ALDL stocks estimate at 470 is bearish versus trade estimates. Our acreage estimate is also bearish as we expect to see spring wheat acres that were intended to go to beans as farmers prepared for a major flood, switched back to wheat when they were able to get into the fields 1 to 2 weeks early. Prices have however fallen to levels where there is economic value. Thus we would trade the December from either side, using rallies towards 370/380 to sell and hold.
Bill Biedermann TOP
195 Route 6A, Suite 6, Orleans, Massachusetts
(July 2, 1997) WHEAT: A good harvest, bearish report and carryover selling from the beans continue to weigh on the wheat market. Exports were poor. Quarterly stocks figures were below expectations, but negative attitudes carried over from the beans. Since we're at three-year lows, I would prefer to approach the long side.
RECOMMENDATION-Aggressive traders should probe the long side of December wheat at current levels. Use stops of 5-7 cents. Expect serious resistance as 370 is approached. Option traders should begin to consider September or December calls for the long pull. Longer-term bulls might consider buying this break. Objective is open. Resistance remains near 355, 365, 370, and 378.
M. Steven Morgan TOP
One New York Plaza, New York, New York
(June 30, 1997) WHEAT: PRICE OUTLOOK-SHORT- TERM-From a technical standpoint, July, September and December wheat are oversold. However, the chart patterns appear negative. December wheat may be in the process of bottoming.
-Although wheat futures are near contract lows, current favorable fundamentals should keep pressure on the market.
-Wheat futures may be attempting to consolidate, and a choppy sideways trade could ensue.
MEDIUM-TERM-Expect to see choppy markets with a negative bias that could result in new contract lows for both the September and December contracts as harvest approaches. Current prices are about 2-5 cents away from contract lows of $3.33½ in the September and $3.44½ in the December. Prices have the potential to exceed these lows by about a dime.
LONG-TERM-As the fall and winter approaches, December wheat could experience a significant rally. This is a normal time period for a rally, and the probability of one occurring is increased this year given the current El Nino situation.
-In four of the last five El Nino years, the average rally was 60 cents per bushel. The market steadily lost ground in one year, 1976.
-A 60-cent rally from current values would project December wheat to the $4.05-$4.10 area by late fall. This is an initial objective, dependent upon a strong El Nino and its impact on Australian wheat production.
RECOMMENDATION-Wheat prices have fallen a long way in a short time and may be ripe for a correction before ultimately posting a harvest low. Given that we expect a seasonal rally into the fall and winter, we recommend establishing long positions now in December wheat. Because prices may not yet have bottomed, we strongly advocate using options to position ourselves for the expected rally by purchasing December futures and buying September $3.40 puts, financing the position by selling December $4.10 calls.
Tom Levis TOP
209 South LaSalle, Chicago, Illinois
(July 3, 1997) WHEAT: New contract lows here also as the market still trading supply bear news. After the super recovery in the freeze-damaged winter wheat areas; after the rains in the northern Plains; after the huge potential for the corn crop (feed wheat). The USDA reports an extra 1 million acres over the trade estimates. Supply bear indeed. Demand has been a bit better and helping to stabilize the fall somewhat, but the buyers (as in the corn and beans) realize they now have the upper hand and have played a cat and mouse game with the exporters. What a difference a year makes. Nonetheless, some of this is spillover from the corn and bean losses. Many times, money wise, if the public is bullish they tend to be bullish all the grains and long them also. Losses in one pit could take away the ability to hold positions in another pit. Domino theory to a degree. However, we feel the wheat will be first to turn. Besides our production, global conditions have, if not improved, not worsened. We need a demand trigger though to pull us out of this ride to what looks like the low $3.00 area. Just can't see yet the supply bear turning over to the demand bull.
John W. Kleist TOP
Sagamore Partners, Inc.
575 W Madison, Ste 2607, Chicago, Illinois
(July 02, 1997) WHEAT: Wheat futures continued to be fixed in their weak state as it seems the market continues to find pressure from fairly weak exports along with harvest pressure in the HRW wheat belt. The USDA indicated recently that they expect the crop to grow by 43 million bushels due to higher winter wheat yields. That later situation has helped boost ending stocks by 22 million bushels despite an increase in exports of 25 million bushels. The later figures were released before the harvest got into full gear and with harvest nearing the half way point in the HRW wheat belt it now appears that yields will be even larger with some dryland wheat bringing 70-80 bushels an acre in areas that were thought to have suffered heavy freeze damage. Taking the later into consideration it seems that the International Grain Council's predictions for a record world crop during the 1997-1998 growing season will come to fruition. Overall, market internals remain in a weak state and with a large U.S. crop being reaped the trend of lower prices should continue through years end and maybe longer as long as there are no damaging weather events. Technically, July wheat is in a downtrend. The trend would turn back up on a close over $3.67.
FUTURES STRATEGY--Short WN at $4.28½. Move the protective buy stop close only down to $3.57.
OPTIONS STRATEGY: Short WZ $3.80 calls at $.10. Maintain a protective buy stop at $22,
Tony Montini TOP
COMMODITY RESOURCE CORPORATION
P.O. Box 8700, Incline Village, Nevada
(July 3, 1997) WHEAT: OUTLOOK-Wheat futures topped out this year on April 21st at just under $5/bushel. Prices are now almost two dollars lower. If the normal seasonal pattern continues to work, this market should be bottoming out about now, and I think this is the case. Prices, currently at the levels of last year's lows, should prove to be a stimulant to demand. Prices have also been known to bottom right in the thick of the winter wheat harvest. Plus, there are dry places in the world: Australia, China, portions of the U.S. northern plains. I see no more than 10 to 20 cents additional downside, if that much, and good longer-term upside potential in wheat.
STRATEGY-HEDGERS: Winter wheat farmers are 75% sold in the July KC futures between 380 and 430. You should be covering these hedges (at big profits) as you sell your new crop. Sell it out of the field. To maintain ownership with limited risk, look to buy December at the money call options. They are now cheap, under 15 cents/bushel.
TRADERS: Look to buy December Minneapolis futures at 362 or better. Be prepared to risk at least 20 cents and leave the upside objective open at this time.
George Kleinman TOP
27253 Timberlane, Monee, Illinois
(July 2, 1997) WHEAT (CBT, KC)-HIGHLIGHTS-CBT wheat established new contract lows this week.
TECHNICAL ANALYSES-TRENDS (CBT and KC): Long-term down, intermediate down, short-term down.
FUTURES (CBT): Close 332½ [4-day change = _10½], resistance 336½, 344½, support 329. Futures (KC): Close 340½ [4-day change = _13½], resistance 343, 353, support 337½.
These markets have oversold technical signals; there are some indications of slowing downside momentum.
FUNDAMENTALS-BULLISH: Frequent rains and cool temperatures continued for a second week in western Europe, slowing crop development and restricting fieldwork. Excess rain in some wheat areas of Argentina and Brazil impact negatively on production. Australia's wheat production forecast has been reduced again because of possibilities of El Nino-induced drought.
FUNDAMENTALS-BEARISH: Substantial rains have eased dryness in the U.S. northern Plains and southern Canada. Timely rains and warmth have provided near-ideal conditions in eastern Europe and former Sovie Union states.
RECOMMENDATIONS-(For KC wheat, use equiv. price orders)-POSITION RECAP-(CBT) Short July 5/2 at 416 support violation ("sv"); added at 401 on 5/12 sv; added at 394 on 5/16 rec.; added at 375 on 5/23 sv; added at 362 on 5/28 sv; added at 356 on 6/4 sv added at 364; added at 350 on 6/13 sv; added at 341½ on 6/18 sv; added at 335 on 6/20 sv. Exited 1/3 of position at 342½.
NEW: Sell/add at 341-oco-329½-stop. On remaining position, exit at first signal (trailing stop, parabolic or Margraf Exit Rule #2).
Ernest Margraf TOP
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