11-09-2017: December Kansas Wheat: Weather a Main Determinant

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Introduction
Intermarket
Parabolic

Nirvana
News
Point & Figure
Cyclic/Seasonal

Internal Progrm
Third System
Margin

Historic Range
Commitment
Volatility

Random Chart
Options
Calend Spread

Level Table
Other Factors
Recommendation

1
01

2     3

4     6     5


Introduction

Things were looking grim for a Kansas winter wheat harvest after a late snowfall and dry weather hampered crop development. This was supportive for wheat and grain prices for a while, but saving rains came in before harvest helping the maturing process, although yields were not up to average. A global stockpile of wheat was being reduced due to the fact that much fewer wheat acres were being planted (in Kansas, dating back to levels not seen since 1909) due to low prices. Farmers appear to be below breakeven. Most factors should point to higher wheat prices after present inventories are gradually used up and lowered, but the speed with which this will happen is in doubt. Meanwhile, farmers would like to move their crops even at a small loss, and await the next season or plant something different. Weather has been a factor, saving in this case to avoid crop loss, but not saving in terms of helping prices.


Intermarket Analysis

We fed Kansas wheat, Chicago wheat, and soybeans into a neural network to get the following result:




Parabolic Chart

December Kansas Wheat:

Parabolic Chart


Nirvana Chart

December Kansas Wheat:

Initial Chart


News Analysis

After some earlier dryness, ample rainfall helped much of the Kansas winter wheat crop recover during harvest time. Harvest is beginning as long as south-central Kansas stays dry enough. Earlier, the USDA rated 30% of the wheat crop in good to excellent condition, another 41% in fair shape, and 29% in poor to very poor condition. Rain in the previous month helped a much improved production outlook as the crop finished maturing. Last year's drought-striken crop and lower crop prices drove down net farm income in Kansas well below the five year average. Net income across 1.175 farms in Kansas averaged $122,190, down from $140,356 a year earlier and below the five-year average of $149,114. Especially hard hit last year was south-central Kansas where income dropoped to $52,996 on average, down from $151,464 a year earlier. A month of recent rains turned an abysmal harvest year into an average one. Yields are anticipated at 30 to 35 bushels per acre versus an average of 40 to 60 bushels. Some farmers figure to lose about $2/bushel on the price, during what is considered a bad year.

During the past year, visits from hail, lack of moisture from a late snowfall, have challenged wheat's resiliency, which is demonstrated better in genetically altered crops. Yields and weights this year have been a mixed bag, with eerything from abandoned fields to yields upwards to 80 bushels per acre.

A breakeven cost for Kansas Wheat is around $4.50 at average yields. Plant diseases took an unusually heavy toll this year in the form of wheat streak mosaic virus that hit Kansas' Hamilton, Scott, and Lane counties where a lot of fields aren't going to be harvested because the disease was so devastating.

The Kansas Wheat Commission, Kansas Wheat Alliance, and Kansas Crop Improvement Association are seeking appliocations for research projects to help producers increase profitability. Projects include wheat breeding, quality, disease screening, insect research, phenotyping, genotyping, with about $2 million available for projects.

Senator Corker of Tennessee proposed a change to U.S. in-kind food aid packages. He called to eliminate food-in-kind in favor of all cash gifts. Foreign aid to countries like Tanzania are considered more effective than cash grants in positioning a tangible presence that cash can't match. The idea is to get food to places where it is needed most. U.S. wheat farmers believe time-honored U.S. food aid programs have been engines of peace, food security and local capacity building in many countries around the world. Sen. Corker's ideas are strongly opposed by wehat growers' associations in the midwest. At the same time wheat growers applauded President Trump's aggressive trade enforcement at the World Trade Organization. In focus were China's tariff rate quotas for imports, administered in an unfair, unpredictable, and non-transparent manner. China impedes wheat imports to the detriment of Chinese consumers, where the wheat in question comes from Australis, Canada, and the U.S.

Winter (Kansas) wheat accounts for almost 3/4 of total U.S. wheat production. Planting begins in mid-August through October, and harvest occurs from mid-May to July. Thus much of the harvest news is old, ending in July with futures volatility decreasing after that somewhat. Summer (Chicago) wheat planting occurs from mid-March through Aplril and harvesting occurs from mid-July to mid-August. Regarding exports, wheat is possibly the most political commodity in the world as its production comes from all corners of the earth. Each year is a new adventure, primarily determined by weather, but also affected by the value of the U.S. Dollar. The planting of Kansas winter wheat for 2016-17 was the lowest in over a century, since 1909. That is because of four straight years of bumper crops around the world. If inventories decline, there could be upside pressure on the price of wheat and bread prices around the world.

World wheat carryover stocks look like for 14/15, 207 million tons, 15/16, 224 million tons, 16/17, 242 million tons, and 17/18 forecast at 249 million tons. This type of carryover estimate pattern is reflected in soybeans, and rice as well, but not in corn. Corn carryovers are affected by a smaller maize crop, causing an overall 3% decline in global grains production overall. World soybean inventories are forecast to drop 11% year over year next year.

A modest contraction in continued growth in China is outweighed by a sharp fall in the major grain exporters. Trade is expected to remain high in 2018 on demand from Asian buyers.

The bottom line on wheat news now appears to be a decline in freight on board prices in North America and Australis linked to a heavy global supply outlook and some improvements in weather.


Point & Figure Chart


465.0I                                                                  R 11/ 7
     I KCBT- Dec-17 Kansas Wheat, 5000 bu., c/bu.  Cm.=0.60  Lim.= 6.0
     I
     I
     I
460.0I_________________________________________________________________________
     I                 X
     I                 XOX
     I                 XOXO
     I                 XOXO
455.0I_________________XOXOX___________________________________________________
     I                 XOXOXO
     I                 XOXOXO
     I                 XOXO O
     I                 XOX  O
450.0I_______________X_XOX__O__________________________________________________
     I       X       XOXOX  O
     I       XO      XOXOX  O
     I       XO  X   XOXO   O
     I     X XO  X X XOX    O
445.0I_____X_XO__X_XOXO_____O__________________________________________________
     I     X XOX X XOX      O
     I     X XOXOX XOX      O
     I     X XOXOX XOX      OX
     I     XOXOXOXOXOX       XO
440.0I_____XO_O_OXO_OX_______XO________________________________________________
     I     X    OX  OX      OXO      X
     IO    X    OX  OX      OXOX     XO
     IO    X    OX  OX      OXOXO    XO      X
     IO    X    OX  OX      OXOXO    XOX     XO
435.0IO____X____OX__O_______OXOXO____XOXO____XO________________________________
     IO  X X    OX          OXOXOX   XOXO    XOX
     IO  XOX    OX          O OXOXO  XO OX   XOXO
     IO  XOX    OX            O OXOX X  OXOX XOXO
     IO  XOX    OX              OXOXOX  OXOXOXO O
430.0IOX_XOX____OX______________O_OXOX__OXOXOX__O__X___________________________
     IOXOXOX    OX                OXOX  OXO OX  O  XO
     IOXOXOX    OX                OXOX  OX  OX  O  XO
     IOXOXOX    OX                OXOX  O   OX  O  XO
     IO OXOX    O                 O O       OX  O  XO
425.0IO_OXOX________________________________OX__O__XO__________________________
     I  O OX                                OX  O  XO
     I    OX                                OX  O  X
     I    OX                                O   O  X
     I    OX                                    O  X
420.0I____OX____________________________________O__X___________________________
     I    OX                                    O  X
     I    O                                     OX X
     I                                          OXOX
     I                                          OXOX
415.0I__________________________________________OXO____________________________
     I                                          O
     I
     I
     I
410.0I----I----I----I----I----I----I----I----I----I----I----I----I----I----I---
                             111111111111111111111111
      88888899999999999999999000000000000000000001111
      22222200000111112222222000011111111112222220000
      23348966788255892267899246900223677990035661127
Our computer tells us a non-conventional reactive approach works best for Kansas Wheat on p&f charts. Therefore the above chart is taken as giving a sell signal.


Cyclical and Seasonal Factors

We are headed toward a cyclical low and a seasonal down period.

Cyclicals Cyclicals Seasonals
Seasonals


Internal Program

Our best-performing internal program is "Pattern." It is giving a buy signal.

Internal Printout 1 Internal Printout 2

Results of "Pattern" for Kansas Wheat (blue lines = successful trades, red, unsuccessful): (Always in the market.)

Results


Third System Confirmation

Our third system has triggered a buy signal. (Note, disregard the year on the chart. Our regular readers know this is not a Y2K-compliant system, but it still works.)

Third System


Margin

The point value is $50. Initial margin on a single contract is $1,925. Use of options is advised.


Historic Range

Scale trade buyers are entering the market for the long term in this price range.

Historical Chart


Commitment of Traders

Commitment 1

In the chart below, the yellow line is the futures price, read on the right axis. All other colors are read on the left axis. Blue is small speculators. Red is large speculators. Green is commercials. Commercials with the best track record are getting increasingly-long. It's not who is tracking small moves better, it's where they ended up after a few months.

Commitment 2


Volatility / Probable Range

FB 1 FB 2

The average volatility shown below suggests that a change in major trend to up is imminent at a volatility low point.

Range/Volatilitiy Chart


Possible Future Prices

Random Chart


Option Recommendation

Our option trade recommendation is to Buy (1) Kansas Wheat July 430 Put and Sell (1) Kansas Wheat March 420 Put @ 1-3.4 to the buy side or less.


o 1 o 2 o 3 0 4 o 5


Calendar Spread

What the Dec. - Jul. calendar spread suggests to us is that buying the near contract and selling the far one is at most times profitable, which we think is a sign that these futures may go up in the long run. The best time to enter or leave the above spread is when it is at -46.00 or narrower buying the far as prices are rising and then selling the near, and exiting or entering when it is at -50.00 or wider selling the far as prices are falling and then buying the near. At this time, we appear to be headed toward the buy the far, sell the near point, which disagrees with our ultimate conclusion.





Level Table:

Level Table

The path of least resistance is down.
630.0|                                                                  T 11/ 7
 KCBT- Dec-17 Kansas Wheat, 5000 bu., c/bu.  Cm.=0.60  Lim.= 6.0
     |
     |     |
610.0|R________________________________________________________________________
     |R
     |RR
     |RRR
     |RRRRR
590.0|RRRRRR___________________________________________________________________
     |RRRRRR
     |RRRRRRR
     |RRRRR
     |RRRR
570.0|RRR______________________________________________________________________
     |RR
     |R
     |RR
     |RRS
550.0|GRRS_____________________________________________________________________
     |GRRSS
     |GGGGRSSS
     |GGGGHHHJRSS
     |GGGGHHHHHHJJRSSSSS
530.0|EGGGHHHHHHHHJJRSSS_______________________________________________________
     |EEGHHHHHHJJJQQRRSS
     |EEEEFGHHHJJQQRSS
     |EEEFFFGHHJMQQQQRSST
     |EEEEFFFFFFGGGHJJJMQQQQQQRSST
510.0|EEEFFFFFGGGGJJJJMMNPQQQQRSSST____________________________________________
     |ABDEEEEEFFFGGJJJJMMNNPQQQQQRSSSTT
     |AAAABBBBDEEEFFGJJJJKMNNPPQQQQSSTT
     |AAAAABBBBDEEFFFJKMNPPPQQQTT
     |AAAAAAAABDDEFFKKMNNPPPQTTTTT
490.0|AAAABBDDKKMNNNPPPPPTTTTTTT_______________________________________________
     |ABBCCCCDDDDDKKLLLMNNNNNOPPTTTTTTT
     |BCCCCCCCDDDDDDKKKKKLLLLNNNNOPPPT
     |BBBBCCCCCCCDDDDKKKKKKLLLLLLMMNNNOOOOOOPPT
     |BBBBCCDDDKKKKKLLLLLMMMMNOOOOOOOOPPPPTU
470.0|BBBCCCKLLMMMMNOOOOOPPPU__________________________________________________
     |BCCCMMMMNOOOPU
     |MMMNOOUUU
     |MMMMUUU
     |MMMMUUXXX
450.0|MUUXXXXX_________________________________________________________________
     |UUVWWWXXXX
     |UUVVVWWWWWWWWXX
     |UUUVVVVVWWWWWWWWXXXX
     |UUVWWWXXXYYZ
430.0|UUVVWWXXXYYYYYYZZZZ______________________________________________________
     |UUUVVVWYYYYYYYYZZ[
     |UUUVVVWYYYYZZZZ[   <<<
     |VVYZZZZ
     |VZZZ
410.0|-A-B-C-D-E-F-G-H-J-K-L-M-N-O-P-Q-R-S-T-U-V-W-X-Y-Z----|----|-- TPO=-0.390
       1 1 1 1                                       1 1 1           1
       1 1 2 2 1 1 2 2 3 3 4 4 5 5 6 6 6 7 7 8 8 9 9 0 0 1           1
       0 2 0 2 0 2 0 2 0 2 0 1 0 1 0 1 2 1 2 1 2 1 2 0 2 0           0
       9 2 7 1 6 3 6 1 7 1 4 9 3 7 1 5 9 4 8 1 5 1 5 9 3 6           7


Other Factors

Multiple Chart Indicators Summary
Multiple Chart Indicators Summary


Here's an intraday chart for a previous day ( 10/31 ).

Intraday Chart


                 Risk Versus Opportunity Report
                ________________________________

               KWZ7    December Kansas Wheat

                      High Price:  441.2
                   Current Price:  426.5
                       Low Price:  396.5

                            Risk: -0.070
                     Opportunity: -0.143

                    (O/R) Ratio =  2.041


Overall Recommendation

Decision Weighting Factors
FactorsWeighted Points
Inter-Market Analysis - 1
Parabolic Chart - 1
Nirvana Chart + 1
News - 1
Point & Figure - 1
Cyclicals - 1
Seasonals - 1
Internal System 1 + 1
Internal System 2 0
Third System + 1
Historic Range + 1
Commitment of Traders + 1
Range/Volatility + 1
Level Table - 1
Other Factors - 1
Total - 2
Place 7 December Kansas Wheat on a Sell Watch with stoploss @ +19-1/2 below the get-in point when recent price is represented as "421-1/2".
____________________________________________________________________________________________________________________________________________W.G.