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COMMODITY REVIEW AND OUTLOOK
195 Route 6A, Suite 6, Orleans, Massachusetts
(August 20, 1997) WHEAT: Wheat traded higher off continuing concerns about the status of the crops in other parts of the world. Carryover strength from corn was also supportive. India is one of the world's largest producers of wheat. Last year, even during a good crop year, they imported wheat from Australia. Now, with problems in Australia, a number of traders suspect that they could come to the U.S. for their wheat needs. If El Nino becomes more of a problem, and monsoon rains end early, India could be a major buyer on the world market. There is also talk that spring wheat is having a problem with scab, and that is also supportive. Argentina, Australia and Canada have all had problems, most of which are believed to be a result of El Nino. However, some precipitation has fallen in Canada. I am of the opinion that the lows are in for wheat, and that breaks are buying opportunities. Expect choppy action higher over the long haul. Do not buy strength in this market. Ample supplies as a result of harvest suggest that the market may be slightly on the defensive, but should work higher off the harvest lows. This is not a weather market, although rain in harvest areas is supportive. Long-term traders should begin to focus on this as a relatively low-risk long-term trade.
RECOMMENDATION–While recent action was positive, it was still in the range, and didn't mean much overall. The December chart has improved, and implies that the break to the 350's is a little less likely. Support basis December remains near 372-374, 368, 365, 363, 355, and 352. Resistance lies near 377-378, 383, and 388-391, 398 and 402-404. Traders could continue to probe the long side of December wheat on 5-7 cent dips or on a pullback to the lower 370's. Use stops of 5-10 cents or under 365 or 355. If very conservative, hold out for a dip to the mid-upper 360's, as a break to that level can't be counted out. Use stops of 10 cents or so. Objective is open. Be alert for failures on rallies and false breakouts. Option traders should buy December calls for the long pull. Objective is open.
M. Steven Morgan
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