This analysis is using the Barchart National HRW Wheat Price Index (HWPI, weighted national average cash price)

  • Trends
    • Minor (Short-term): Up on the HWPI daily chart
      • Though could quickly be moving into a Wave 2 selloff of the 5-wave uptrend pattern.
      • This puts support at the last week’s low near $8.02
    • Secondary (intermediate-term): Up on the HWPI weekly chart
      • Last week saw the HWPI post a bullish spike reversal pattern, confirming a new secondary uptrend
      • The upside target area is between $9.88 and $10.52
        • The HWPI was calculated last Friday at $8.96
    • Major (long-term): Down on the HWPI monthly chart, based on the July move to a new 4-month low below $9.07
      • Given this, the new secondary uptrend would be viewed as Wave B (second wave) of the major 3-wave downtrend pattern
  • Fundamentals
    • Short-term: Bearish
      • The Barchart National HRW Wheat Basis Index was calculated at 49.7 cents under September Kansas City futures last Friday
        • As compared to the previous 4-year low weekly close of 21.5 cents under
        • With the 2017-2018 weekly close for the same week coming in at 66.8 cents under
    • Long-term: Bullish
      • 2022-2023 marketing year futures spreads are covering less than 33% calculated full commercial carry
  • Noncommercial Activity
    • The latest CFTC Commitments of Traders report (legacy, futures only) showed noncommercial traders reducing their net-long Kansas City (HRW) futures position to 17,900 contracts
      • This leaves the door open to continued long-liquidation due to bearish short-term fundamentals
      • Eventually this group should return as buyers due to bullish long-term fundamentals
  • Seasonality
    • Bearish
      • After posting an initial seasonal low weekly close in late June, the HWPI tends to rally 5% through late July
      • Then fall 6% through the first week of September
      • At that point the 5-year seasonal index turns bullish
  • Price Distribution
    • Bearish
      • Last Friday’s calculation of the HWPI ($8.96) put it in the upper 6% of the 5-year distribution range
      • This is a bit skewed as the HWPI moved to a new all-time high during 2021-2022
      • With the upper 33% coming in at $5.30
  • Implied Volatility
    • September futures: 46% = High
    • December futures: 39% = High

Theoretical Position

  • It’s likely anywhere from 33% to 50% of 2022 production was forward contracted.
    • Some have reported 33% was forward contracted, that turned out to be 100% of production. Almost always a problem with wheat.
  • Those familiar with the unlimited risk/limited reward nature of short options could look at selling September call options
    • Base on high implied volatility of September futures
    • The seasonal tendency to post a July high and late August low weekly close
    • If exercised, these positions would be used as sales of bushels still held
  • If wanting to sell cash, the upside target area for the HWPI is $9.88 to $10.52
    • That puts September futures $10.41 and $11.06
      • The contract reached a high of $9.9825 overnight through early Monday morning
  • Those looking to renown could wait for the short-term Wave 2 selloff, or
    • The seasonal downturn through late August
  • The DNAI in-house algorithm is showing a theoretical
    • Short-term long futures position (and adding to its position)
    • Intermediate-term short futures position (neutral)