CNBC’s Jim Cramer on Tuesday stated corn and wheat costs may proceed to rise as a result of Russia’s invasion of Ukraine, leaning on evaluation from Carley Garner, senior commodity market strategist at DeCarley Buying and selling.
“The charts, as interpreted by Carley Garner, recommend that each wheat and corn costs are headed greater right here. Possibly a lot greater. And that’s the very last thing we need to see, however we would must get used to it,” the “Mad Cash” host stated.
Cramer stated that Ukraine and Russia account for a 3rd for the world’s wheat manufacturing, and whereas this yr’s crop was planted earlier than battle broke out between the 2 international locations, harvesting and delivery may very well be a problem as a result of excessive power prices and security issues.
Present costs are the best they have been since 2008, when a slew of things together with excessive oil costs and unusually dry climate in the US led wheat to leap to $13 a bushel from the $3 to $6 it hovered round for many years prior, Cramer stated.
Garner believes this leap was “even sooner and extra disorderly,” Cramer stated. Moreover, as a result of future exchanges have worth limits on how a lot a commodity can transfer in a session, wheat may be “locked limit-up,” which suggests the value has moved to its restrict in a day, and short-sellers who do not need to promote on the restrict worth are held in that place till the following day.
This phenomenon occurred in the course of the week after the Russia-Ukraine battle started, which Garner believes helped drive up wheat costs to $13.60 with little buying and selling.
Here is a weekly chart of wheat futures and the Commodity Futures Buying and selling Fee’s commitments of merchants information. The COT report reveals the online positions of small speculators, massive speculators and business hedgers.
Right here, Garner sees that due to locked limit-up buying and selling classes, cash managers are web lengthy by solely 12,000 contracts, Cramer stated. Prior to now, they may go as much as 50,000, based on Garner, which implies that “if institutional cash managers need to wager on wheat right here, they’ve nonetheless acquired a ton of dry powder,” Cramer stated.
Garner believes costs are going to proceed to extend, Cramer stated.
Right here is the every day chart of the Could wheat futures:
After costs peaked on March 8 and underwent six limit-up strikes, wheat futures declined sharply, based on Garner. However costs nonetheless stayed above wheat’s 20-day shifting common, whereas the Relative Energy Index, a momentum indicator, pulled again from overbought territory whereas staying optimistic. This implies wheat has “acquired extra room to run,” Cramer stated.
“So long as it holds above its ground of help at $10.30 a bushel, which is down roughly 90 cents from right here, Garner believes wheat could make one other run at its highs over the approaching weeks or months,” Cramer stated.
Though Ukraine accounts for 4% of the worldwide output of corn, “no dealer desires to promote corn when the wheat board is lighting up,” Cramer stated. He added that corn was capable of rally as a result of corn-based ethanol is at the moment cheaper than oil, which has surged in worth in latest weeks.
Right here is the month-to-month chart of the Could corn futures:
Garner believes the corn rally may finish quickly however nonetheless be hard-hitting, stated Cramer, including that if corn futures surpass the value ceiling of resistance round $7.70, it may strategy document ranges of $8.50.
“She would not anticipate corn to burst by way of that stage, but when it by some means manages to maintain roaring, then she would not see any extra resistance till $10.50. That might be a brand new document. If corn will get to that stage, it means we’re coping with an insane stage of inflation,” Cramer stated.
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