The late-April blizzard that ripped through Kansas and the U.S. plains came at a critical stage in the wheat growing cycle. This is called the booting stage, and it’s when wheat emerges from its winter dormancy stage.
This is important because at this stage, wheat becomes particularly sensitive to abrupt drops in temperatures. And this is quite likely to weigh on yields and to limit overall production.
But it also comes at a time when fund traders and speculators hold a near-record short position in the wheat market. This type of dynamic leaves them wrong-footed and susceptible to short-covering as the market pushes through resistance – fueling more upside in prices.
While some of the speculative froth came out of the market in recent sessions as regional crop-scouting tours played down the damage, we think there’s more upside to come. That’s because most of the hardest hit areas were still under snow cover when the crop scouts were in the field.
Furthermore, there are concerns arising from millers trying to procure high-quality wheat – those with higher protein content used in baking. This also comes as the USDA says U.S. farmers planted their smallest wheat crop in 100 years.
And these concerns are exacerbated by agronomists indicating that wheat crops were already stressed earlier in the season with pest and disease.
Bullish price action
Interestingly, the wheat market showed bullish price action from severely oversold technical conditions before the blizzard. Specifically, the April 25th bullish outside day reversal from a new contract low. Adding credence to the positive turnaround was the May 1 gap above downtrend channel resistance and more upside follow through.
Additional support for higher wheat prices in the weeks ahead comes from the E-Wave cycle forecast that calls for a rally into the second week of June. See chart:
The above E-Wave chart shows the wheat market coming off of a significant bottoming pattern, with more rally potential into early June.
Here’s what we recommend:
Using 5% of the funds you have allocated to this service, buy Teucrium Wheat Fund, symbol WEAT, at the market. Place a good-till-canceled protective sell stop at $5.89.
Get this order in right away. And stay tuned for new trades coming your way very soon.
Good investing,
Mike Burnick
Executive Director
The Edelson Institute
