Grains: A Looming Profit Opportunity In Wheat?

| October 3, 2013 | 0 Comments

wheat and cornNo doubt about it, this summer has been a big disappointment for anyone bullish of grains.  Wheat and corn sank to their lowest levels in years thanks to a blockbuster US growing season.

Let me show you what I mean…

Corn

As you can see, the price of corn sank like the Titanic in July.  And after a slight rebound in late August, the commodity is currently resuming its strong downward trend.  The recent drop is due to exceptional growing conditions across the Midwestern US, which is increasing investors’ expectations of a bumper crop. 

The essential commodity is currently trading below $4.50 a bushel- the lowest price since mid-2010.

And take a look at wheat…

Wheat

The essential grain dropped below $6.30 a bushel in August.  Abundant global wheat harvests had bears in control of this market for most of 2013.

But notice the September uptick…

Wheat is jumping in recent trading thanks to a USDA report that revealed inventories are lower than what investors had priced into the market.  In fact, at 1.85 billion bushels, current wheat stocks are nearly 60 million bushels lower than previous expectations.

According to analysts at Goldman Sachs, US summer wheat demand is at its strongest level in the past 38 years.  This is due to the rising use of wheat as cattle feed in midwestern feedlots.

And that’s not all…

The US is also exporting enormous quantities of wheat to Brazil.  As a matter of fact, Brazilian imports of US wheat surged to 1.46 million tons this summer.   That’s a remarkable 45-fold increase over previous levels. 

Why the sudden export surge?

Argentina, which is traditionally Brazil’s primary supplies of the essential grain, restricted exports in order to ensure local supplies.  What’s more, a recent cold snap has harmed nearly 15% of Argentina’s wheat crop.

Given this increasingly bullish information, is wheat on the verge of a big breakout?

From a technical perspective, the price of wheat has already broken above an important downtrend line.  That alone opens up the possibility of higher prices in the near future.

But with corn still stuck in a fierce downtrend, wheat’s gains will likely be limited in coming weeks.

You see, corn and wheat always trade at some level of discount/premium to each other. And right now wheat is trading at a hefty $2.44 premium to corn.  That’s the biggest wheat premium investors have seen since mid-2010.

Bottom line…

Wheat’s fundamentals are turning more bullish.  But you really need to watch corn for a signal to get long wheat.  If corn puts in a modest reversal, you can use the Teucrium Wheat Fund (WEAT) to get long the wheat market.

Stay tuned to Commodity Trading Research for more ideas on how to pull profits from grain markets!

Until Next Time,

Justin Bennett

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Category: Corn, Wheat

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.

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