Wheat Prices are on the Verge of Breaking Out

Social media. It’s just a tool. How you choose to use it is entirely up to you. One of the things I get from it are trade ideas.

As I’ve been saying, there a some gorgeous set ups in markets, and more specifically in commodities and small caps. Some of which are already moving, but many are still sitting on the launch pad. One of which is wheat.

In this post I’ll break down the set up, potential catalysts, and multiple ways you can play the move.

Table of Contents

• How it caught my attention.

• The Setup

• Potential Catalyst(s)

• How you can trade it.

• Other Options for Larger Potential Gains

• How to Safely Place Your Bet(s)

• Targets and Time-frames

• Wrapping Up

• Take 100% Responsibility for the Result

  • Learn. Improve. Pass on.

How it caught my attention.

Look, I don’t track wheat. I never have, at least, until now. No reason, it just wasn’t my thing. But now it’s got my attention.

My curiosity began with a post on X from Jason Perz, because I have been following him long enough to know that Jason understands commodities.

So when the below was posted, it was time to look further from the angle at which I view markets.

The Setup

If you are not familiar with charts, don’t worry. It’s easier than you think and most of what you need to know is pretty basic. With that being said, I think it is crazy to trade/invest in financial instruments without looking at it’s price history.

The chart below shows the price of wheat futures going back to the back half of 2019 which is reflected at the bottom of the image.

First, let’s talk about the aqua colored dashed line. That is the breakout point for wheat prices in late 2020. You can see that as prices broke the line higher, they tested and then retested that level before soaring higher. This is what is known as an S/R (Support/Resistance) Flip. Meaning that level was once resistance, but then became support. After prices surged higher thanks in part to the invasion of Ukraine, they eventually rolled over and came back to revisit the previous breakout level. Which is where price currently sits.

To get a bit more technical, the price of wheat is now putting in a nice rounding bottom, and is now experiencing a bullish MACD crossover (orange circle in the bottom third of the image) after exhibiting bullish sentiment. If I lost you there, just know that all of those things are positives and characteristics of a bottom in prices.

Now if you take a step back and look at how wheat has performed in the last two credit cycles during the Economic Slowdown phases, you see that wheat massively outperformed the S&P500 in the 2000s, and pretty close to on par with the S&P500 in the 2010s with a surge in the middle.

Here’s one of the key advantages of using The Economy Tracker for trading and investing: it divides the market into distinct phases, allowing you to focus on each segment and see how similar periods have behaved in past credit cycles. This helps you spot patterns, making it easier to anticipate market movements based on historical performance. It’s a straightforward approach to understanding trends.

Potential Catalyst(s)

So now that you see the technical set up and know that history is on your side, next you want to see if there is any sort of a catalyst to send prices higher. And this one has a few…

This is where Kashyap Sriram input joins the party as recently posted the following:

So I looked further and found confirmation of numerous potential catalysts:

1. Lack of precipitation in Russia puts sowing of winter wheat at risk. https://www.bloomberg.com/news/articles/2024-10-07/russian-minister-asks-farmers-to-pray-as-lack-of-rain-persists?cmpid%3D=socialflow-twitter-asia

2. Repeated heavy rain led to the smallest French wheat harvest since the 1980s. - https://www.reuters.com/markets/commodities/french-millers-face-long-grind-rain-hit-wheat-harvest-comes-2024-09-18/

3. Hurricane Milton: One of Mosaic’s (MOS) phosphate facilities is located in Riverview, FL. Reportedly, 50% of fertilizer used in the US is manufactured by Mosaic. Not sure how much of that comes from the Riverview facility. (This may turn out to be nothing, but something to consider here.)

4. Delay in the planting of the winter wheat crop in the US due to ongoing hot and dry conditions. https://www.agriculturedive.com/news/drought-us-cotton-wheat-texas/729206/

5. Port Strike resumes in January: “Over half of all East and Gulf Coast fertilizer exports move through Tampa, while over 70% of the regions fertilizer imports enter the country through New Orleans.” according to Ryan Bowley, the Vice President of Government Affairs for The Fertilizers Institute.

6. This would be a “catch up trade” as other commodity prices have already exploded higher, such as as Cocoa, coffee, and orange juice have already moved higher. Catch up trade.

How you can trade it.

Now that you know there’s a set up and numerous potential catalysts to send wheat prices higher in the near future, it is time to look for a trading vehicle to profit from the move.

The easiest way is to simply buy the wheat ETF, ticker symbol WEAT.

WEAT is at the buypoint now, and a good stop loss would be $5.04.

However, that’s not the only way to play the move, and may not be the most profitable either if history has a say.

Other Options for Larger Potential Gains

Shout-out to Dave here for asking a great question about how to play the move:

As you can see from the chart below, fertilizer and agriculture stocks also typically perform well when wheat prices move higher. Often showing relative strength over the same time frames. So, WEAT and wheat futures aren’t your only options.

Below is a breakdown of how different names which are highly correlated to wheat prices performed over the past 20 years while wheat prices showed relative strength.

And this how how the same names have been performing leading up to this potential break out:

Out of all of these ideas, I like CF, DE, NTR, and IPI the best and in that order. Mostly because of the upside potential, recent relative strength, and comparing the fundamentals.

How to Safely Place Your Bet(s)

The Best:

CF Industries CF between $82.50 - $85.50 for an entry.

Stop loss of $67.72

The one with additional catalysts other than wheat:

John Deere DE $385.00 - $422.00

Stop loss of $361.73

One that could surprise as the top performer:

Nutrien NTR $48.00 - $52.75

Stop loss of $44.48

One that could go ballistic like it did in 2021/22

Intrepid Potash IPI $22.25 - $25.75

Stop loss of $20.67

You could also divide up the risk you are willing to take on this one opportunity and spread out your bets among all five options. Just remember, they are all the same trade. Therefor, if you apply the amount you are willing to lose to all five trade, then you have multiplied your once comfortable potential loss by five.

Targets and Time-frames

You are looking for huge moves here, and huge moves take time. Therefor, this is not expected to be a quick trade. However, you definitely do not want to overstay your welcome as price takes the stairs up, and then jumps out the window for the way down.

First let’s see how far this potential breakout moves in order to begin determining price targets.

Once that happens, we will reassess.

Wrapping Up

So, there you go. That’s one way to find a trade or investment, and also how using social media properly can enhance your life. Remember, social media uses algorithms to put information in front of you that it determines you like based on the content which you choose to look at and engage with. If you’re feed is trash, that’s because you are engaging with trash content. More proof that the world in which you see is a product of the way you CHOOSE to see the world.

When I post opportunities in the future they won’t all be this in depth. However, I thought it was important to show you some of the work that goes into finding these opportunities.

This is simply one way of finding an opportunity and then how to put a plan together to put on a some risk.

More posts with investing (longer term) opportunities are coming, so be on the lookout if you want to partake in the action. After all, why not take advantage of learning the system in which markets and the economy operate.

Inflation is and has always been present, so you might as well take advantage of it instead of simply forking over more money today with yesterday’s lower wages.

Take 100% Responsibility for the Result

If you decide to take this trade under these parameters, that decision is 100% yours and yours alone. If you are the type of person to blame others for your choices, then trading/investing is not for you.

With that being said, if you have any questions now or along the way, do not hesitate to ask me privately or publicly. I will offer any insights that I have.

If you enjoyed this post or found it useful, do me a favor and hit the like (heart) button and share it with others.

Click the Leave a comment button if you have any questions or comments, or need something clarified. Don’t be shy. The main point here is to improve constantly. Questions and comments help us both and tells me what you are interested in learning/hearing more about.

Learn. Improve. Pass on.