Todd's Take

By Todd Hultman
DTN Analyst

For the first time in three years, DTN's national index of cash HRW wheat prices posted a new one-year high on June 16, a significant bullish change from the 13-year low that prices fell to last August.

HRW wheat prices are being helped by the lowest planting of all U.S. wheat acres in more than a century, but also by drought in the Dakotas. USDA posted its lowest crop rating for spring wheat since 1988 and, I suspect, the winter wheat harvest may be discovering problems from this year's numerous weather challenges. Threats included an early spring in February, snow in late April, and excessive rains in May. There are also losses to wheat stripe mosaic virus that the Wheat Quality Council's HRW Wheat tour cited in early May.

While wheat regions outside of North America appear to be doing well, this year's challenges in the U.S. have helped DTN's National HRW Wheat Index gain $1.27 a bushel from the Aug. 30 low of $2.80. Forty-five cents of the gain came from higher cash prices relative to the futures board, which suggests improved domestic demand is another bullish factor.

So far, USDA is not expecting any decline is world ending wheat stocks in 2017-18 but, frankly, its estimate of slightly lower world wheat demand may be too bearish. There seems to be no argument that U.S. ending wheat stocks will be lower in 2017-18 -- we just don't know by how much yet.

At best, the fundamental outlook is only moderately bullish for winter wheat, but Friday's new one-year high in DTN's cash index and July K.C. wheat's new three-month high on the futures give prices their most bullish potential in at least three years.

There is one other aspect of HRW wheat prices that I mention reluctantly, more out of curiosity as a long-time observer of markets. When it comes to Elliot wave theory and Fibonacci ratios, I would not describe myself as a regular church-goer, but more of a curious passerby who enjoys the music from a distance.

Looking at the monthly chart of DTN's National HRW Wheat Index however, I couldn't help but notice that the bearish decline of prices from February 2008 to August 2016 displayed an obvious three-waves down and seemed to have a certain sense of proportion.

Wondering if this fit Elliot wave's A-B-C format, I counted 28 months from the peak to the bottom of the A wave and 45 months from the top of the B wave in November 2012 to the bottom of the C wave in August 2016. Sure enough, plugging Fibonacci's golden ratio of 1.618 into my calculator times the 28-month duration of the A wave equaled 45.3 months, very close to a classic C wave proportion.

Elliot wave and Fibonacci enthusiasts may cheer this as proof of a long-term bottom, but I reserve the right to be keep asking questions. From my perspective, I am more impressed that HRW wheat prices are lifting off their lowest prices in 13 years and, going by USDA cost estimates, 2016 was the least profitable year for wheat producers in several decades.

Those kinds of deeply bearish markers are rare contrarian indicators that tend to coincide with long-term lows. The sight of HRW wheat prices conforming to a ratio that the mathematician, Leonardo of Pisa (a.k.a. Fibonacci) explained to Europeans in the 13th century is a little eerie, but it sure makes a person wonder.

Todd Hultman can be reached at

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