On the fundamental side, during the June 2012 rally, Russian wheat was severely stricken by stressful heat of nearly 95 F (35 C). This quickly wiped out moisture levels vital for the crop. The subsequent crop was also reportedly damaged when the winter wheat harvest in Russia started. Reports showed about a 30% decline in wheat yields when compared to year over year figures. To make matters worse, torrential downpour lasted 2 weeks after the drought, halting the harvest, nothing seemed to go right.
With the fundamentals in mind, the volume profile presents an interesting opportunity. Market profile suggests that long-term traders overwhelm short-term traders when price readjusts to higher levels. This readjustment can occur in a variety of ways, but specific to wheat here, fast moves are examined. Brisk adjustments to higher prices tent to not provide support and resistance, for volume is scarce at these prices. This is displayed in the volume profile, the rally was swift and on low volume, the chart lacks a proper distribution during this time frame or from June to August of 2012.
Current prices are about 2% above the 200 DMA, but aside from a probable bounce, the chart seems to be bearish. Price consolidated for nearly six months, so the potential for overhead supply at the $850 level (where price bounced many times) is large. The 50 DMA also recently crossed below the 100 DMA, strengthening the bear case. Either way, wheat will be an interesting product to trade in the coming weeks.
Below is the aforementioned chart and the wheat futures curve.
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