Bad weather threats sowings
The wheat price rose significantly in the recent 2 days. Market participants worry the crops may suffer from the major flooding in the US state of Texas. The additional factor that pushed the prices up was the sizeable net shorts in wheat on US CBOT. Last week it reached the highest since 2006, according to the U.S. Commodity Futures Trading Commission. Many investors rushed to close the shorts amid price increase on weather conditions. Will the wheat prices continue advancing?
According to the Commodity Weather Group, the overly rainy weather is observed not only in the US but also in Brazil and Argentina. It may affect wheat, soy and corn crops, which are also becoming dearer. Previously, South America suffered from droughts. The USDA assessed spring wheat acreage in 11.3mln acres, which may become the lowest since 1972. The update will be released on June 30. In April, USDA revised down the global wheat forecast by 1.06% to 733.1mln tons in the 2015/16 farming season, while the outlook for Brazil’s output was cut 8% to 5.54mln tons. The next global grain production forecast will be released by USDA on May 10.
On the daily chart Wheat: D1 has left the downtrend to move upwards. Now its upward movement is accelerating. Wheat is struggling to surpass the 200-day moving average. The MACD and Parabolic indicators have formed the signals to buy. The RSI has come close to the overbought zone, no divergence. The Bollinger bands have contracted, which means lower volatility. The chart has surpassed the upper boundary of the indicator, which may mean stronger trend. The bullish momentum may develop in case the wheat prices surpass the 200-day moving average at 495. This level may serve the point of entry. The initial risk-limit may be placed below the Parabolic signal, Bollinger band and the last fractal low at 450.
Having opened the pending order we shall move the stop to the next fractal low following the Parabolic and Bollinger signals. Thus, we are changing the probable profit/loss ratio to the breakeven point. The most risk-averse traders may switch to the 4-hour chart after the trade and place a stop-loss there, moving it in the direction of the trade. If the price meets the stop-loss level at 450 without reaching the order at 495, we recommend cancelling the position: the market sustains internal changes which were not taken into account.
Position: Buy
Buy stop: Above 495
Stop loss: Below 450