Wheat Prices Rally Like Hell, But Fundamentals Lag - A Great Short Opp?

Today, wheat prices hit their highest levels in two years.  Russia announced a ban on exports, sending wheat "limit-up" on the day, as September futures closed at $7.83 a bushel.  It's been a wild ride for wheat this year:

Since the 4th of July, wheat has really taken off. (Source: Barchart.com)

Wheat headlining the Wall Street Journal caught me completely offguard.  Long time readers know we've been on the agricultural commodity beat since 2005, so it's tough to see wheat on the move without being aboard!  Alas, I have to admit I was too distracted by the looming presence of deflation to keep an eye on the grains.

There may be opportunity yet, though - and that may be in shorting corn and soybeans, which are also rallying on the bullish wheat news.  The WSJ writes:

The wheat supply concerns are spurring price increases for other grains too. September corn futures in Chicago hit a seven-month high in early trading, rising 6.2% to $4.25 a bushel. Corn and wheat are linked because both grains are used for animal feed. When wheat locks up at the exchange-imposed limit, traders who want to buy grain futures will likely look to CBOT corn and soybeans.

I saw the supply and carryover stock numbers on beans and corn recently, and there's plenty to go around.  Some services I subscribe to were already suggesting these two as potential shorts - I'd imagine this rally could make that trade even more attractive.

And while wheat is rolling, it remains to be seen how far the actual supply fundamentals will let this rally go:

However, the situation doesn't appear to be as dire at it was in 2008, when crops failed world-wide and wheat prices rose to more than $13 a bushel. According to the latest projection from the U.S. Department of Agriculture, there there will be almost 30 million tons of wheat in U.S. stockpiles at the end of next May, a 23-year high. U.S. inventories had dropped to an all-time low in 2007-08.

When trading the grains, you never want to go against the trend.  The current trend is UP, so that would be the correct short term play.  I, however, would be too skittish to pull the trigger on the long trade at this juncture, given the huge stockpiles still on hand.

Buy the breakouts, and sell the breakdowns, when it comes to the grains.  I'm afraid we missed the breakout, but there could be an inverse play when these skaters reverse course.