Generally speaking, the wheat markets have been trading range bound since the middle of September after testing the support levels in late August. Speculators accumulated sizable short positions to reach those lows but with this pressure, it discouraged the amount of spot selling during the latter part of harvest. Lacking that fuel, the market bounced back as the speculators evened up their positions. While a bounce occurred, the supplies continue to be a concern. The combination of burdensome wheat carryouts both in the US and the world, very comfortable corn stocks and no major production concerns overall have limited the upside potential for wheat.
The PNW export market for this fall continues to be focused on the corn and soybean potential since the wheat demand is still rather disappointing. Some of the traditional users of US wheat did execute some purchases during the lows but US values continue to be priced at a premium compared to the Black Sea region and Australia. The US Dollar continues to trade on the top side of the market since it made the surge against other currencies beginning in mid-2014. Below is the US Dollar index chart over the past 5 years:
Now that the election is complete, the market finally has settled down. Initially, the market was quite volatile given the surprise outcome of the election. Optimism continues to grow for the US economy with the latest GDP growth outlook from the OECD projection growth of 2.3% in 2017 and 3.0 for 2018. This is having a major impact on the US Dollar strength with is at a 5 year high. This strength is making US wheat less competitive in the world marketplace so most of the demand will be centered on having the best quality wheat in the world.
Technically, there is not much to be excited about. While the downside seems to be fortified for now at $3.62 the Chicago Wheat, we are seeing good resistance at the 38% retracement at $4.25. If that resistance does break, there is only another 20 cents of upside. Something more fundamental needs to occur before the market can go up further than this. Since demand is rather tempered, this likely will have to come from Southern Hemisphere weather concerns. Below is the latest chart analysis:
Looking at the 15-seasonal, there are also some challenges for the upside potential. With plenty of stocks at this moment and demand lagging, the remainder of the crop year could be difficult to attract support. Below is the seasonal action. While I feel the downside targets on these charts are too negative, I do believe these challenges are rational given the current market environment.