Wavin' Wheat
Key Points
- Wheat tends to make several large swings within a calendar year
- Very often, these swings adhere closely to several favorable and unfavorable seasonal periods
- Wheat is now in the middle of one of the most favorable periods of the year
Wheat tends to show 4th quarter strength
Wheat futures have bounced sharply after forming an August 2024 low. Price action has gotten back above the 70-day exponential moving average, suggesting the potential for a continued favorable trend. Is this just the beginning of a larger advance? We cannot predict. That said, the typical seasonal pattern for wheat suggests that this is a time when we should be looking for - and being prepared to act upon - favorable price action.
The chart below displays the annual seasonal trend for wheat futures. Note a period of seasonal strength that extends from Trading Day of the Year #177 through TDY #204. For 2024, this period extends from the close on 2024-09-13 through 2024-10-22.
The chart below displays the hypothetical cumulative $ +(-) achieved by holding a long position in wheat futures only during the TDY #177 to TDY #204 period every year since 1937.
The table below summarizes wheat futures performance during this period.
An ETF alternative for non-futures traders
The Teucrium Wheat Fund (ticker WEAT) is an ETF that tracks wheat futures contracts. Traders can buy and sell shares of this ETF just as they would any other stock or ETF. Buying WEAT shares allows non-futures traders to participate in any advance in the price of wheat. The chart below (courtesy of AIQ TradingExpert) displays the monthly history for ticker WEAT. Note that there is a natural stop-loss point below the recent low of $4.71 a share.
What the research tells us…
Over 87 years, wheat has advanced in price 60 times, or 69% of the time, during the period we detailed above. This tells us that there is an edge if we look solely at probability. Wheat also has formed what many technical analysts might claim is a double bottom. While we cannot quantify chart patterns, the combination of a favorable seasonal trend with favorable price action and an obvious "uncle" point suggests an opportunity for traders to play the long side of wheat.