Chasing this trade would be a great way to lose money, but be aware of the fact that a 50% pullback would make a lot of sense as far as a re-entry point.
Wheat markets gapped higher to kick off a huge move on Tuesday but had a very volatile session. Wheat is going to continue to be one of the commodities to watch as Ukraine and Russia are worth 25% of the world’s wheat production. As there is a war there, it is difficult to imagine a scenario in which we would not go higher.
The 1200 level underneath should offer plenty of support, and I do think that any time we drop at this point it is likely going to be a nice buying opportunity. Supply chain shortages will continue to be a major issue, and even though there is quite a bit of wheat in the United States, we also have more concerns out there beyond the short-term market.
Russia and Belarus supply the world with about 40% of total potash production. This is a major factor in fertilization, meaning that we will see trouble with grains across-the-board as yields will not be as strong as they normally are, meaning that there will be lower production values, even in the United States. Because of this, grains will probably continue to strengthen but have clearly gotten way ahead of themselves.
This may be a situation like lumber was earlier, where I went parabolic, crashed really hard, and then started to rally again. What you are looking for is a sustainable rally, not what we have on the charts right now. The market certainly cannot be shorted anytime soon, so a pullback towards the 1200 level has me looking for supportive candlesticks that I can get involved in. Wheat is especially parabolic at the moment, so it is also possible that you may be able to trade corn or other grains instead.
Chasing this trade would be a great way to lose money, but be aware of the fact that a 50% pullback would make a lot of sense as far as a re-entry point. The market would more than likely come to some type of pullback, and it would probably come down to the most recent headlines out of the war zone as to where we go next. That being said, we are in the planting season for this fall’s harvest, so this is why the markets will continue to rise during the course of the year.