Wheat Futures and Sugar Futures Analysis

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Consumer confidence rose in November to the highest level in more than four years as indicated by this morning’s data release, but US stocks are still down on the day (at this writing), with the SP emini futures down .2% and the nasdaq emini futures down .2% as well. Even with somewhat positive news (on the surface) that there was a compromise reached on Greece after a 12 hour meeting of European officials, the market still looks concerned that the fiscal cliff will cause harm to the economy. We believe that until there is a firm positive conclusion on the fiscal cliff situation, the stock market will not rally to new yearly highs. But, if and when there is some positive resolution, it could be ‘off to the races’ for the US stock market.

Crude oil has been in a relatively low volatility environment since its sell-off in October. We keep hearing about lower global demand concerns coupled with a supply glut in the US, but crude has still not hit our next downside target of $82. Crude is down around .66% this morning trading at $87.16.  As we have noted, $92 is our key pivot level for this market. If crude can stay below this level, we believe it will head towards $82.

We believe that wheat futures look to be building a bullish tone. Fundamentally, the drought story persists causing wheat buyers to have bid up the price recently. We have written on the chart that we see a potential “bull flag” in wheat futures, and would not be surprised to see wheat head towards new yearly highs over the next couple of months. We see key support at $8.60 and buyers have recently been active below this level. An estimated 33 percent of the crop was rated good or excellent as of the latest report, down from 34 percent last week and 52 percent a year earlier, the U.S. Department of Agriculture said recently in a report. About 26 percent was in poor or very poor condition, compared with 13 percent a year earlier.

We see an interesting scenario developing in the sugar futures market. Since June 2012, the $19 level has served as a solid support. Sugar tried multiple times, but has not been able to hold below $19. We believe that sugar looks like it could break below $19 this time and head lower. The next major support level on a weekly chart is $15, but this would certainly be a big move if it got there. However, we hold to our opinion that sugar looks bearish. Brazil’s center-south region, the world’s largest producer of sugar, churned out 1.74 million tonnes in the first two weeks of November, up 37 percent from the same fortnight last year.

Wheat Futures chart

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