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(September 25, 1997) WHEAT: Wheat futures again posted moderate losses during the past week sparked by ideas that the Australian crop will be better than expected along with news that some importing countries will see larger production in the next crop year. Weekly export inspections were 8% below a week ago and the running total for this year versus a year ago is lower possibly indicating demand will not be a good as it has been estimated by the USDA. Despite the export lull there continues to be talk that Egypt will come into the market for large tonnage in the near future, but even so demand still appears to be less than desirable at this time. Another factor that must be considered is that the market still has plenty supply to deal with nearterm despite the recent decrease by the USDA of the carryout due to an adjustment in the production figure. The ending stocks of wheat in the U.S. will be the largest since the 1990/91 not to mention that world stocks will be sharply higher than earlier estimate not only because of the U.S. production, but also Chinese production which was estimated up 7 million bushels from the last estimates. Overall, market internals are in a fairly weak state and without any sustained strong export business a significant break in prices could be in the cards for this complex. Technically, December wheat is in a downtrend, the trend would turn back up on a close above $3.86.
FUTURES STRATEGY–Short WZ at $3.90. Maintain a protective buy stop close only at $4.17.
OPTIONS STRATEGY–Sell WZ $3.80 calls at $0.08 or better. If filled enter a protective buy stop at S.22.
Tony Montini
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