Harvest machine approaching with foreground of wheat by Jodie777 via iStock
One of the most expensive mistakes futures traders make is believing a market has fallen too far to sell short. After a prolonged decline, prices may appear attractive, tempting traders to anticipate a bottom rather than follow the prevailing trend. However, markets are not obligated to reverse simply because prices seem historically low. As the familiar market saying reminds us, markets can remain irrational longer than traders can remain solvent. Chicago wheat futures may offer another example of why trading with the trend, rather than trying to predict a reversal, deserves consideration.
Several fundamental developments continue to weigh on wheat prices. Renewed hopes for peace negotiations between Russia and Ukraine, along with improving prospects for Black Sea grain shipments, could reduce some of the geopolitical risk premium, although disruptions remain a concern. Meanwhile, the global wheat supply cycle is shifting. Northern Hemisphere producers have largely completed their harvests and are planting winter wheat, while Southern Hemisphere countries, including Argentina and Australia, are entering their harvest season. This seasonal transition adds export supplies to an already competitive global market, potentially creating further headwinds for wheat prices.
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Weak U.S. export prospects are adding to those concerns. In its October Wheat Outlook, the USDA reduced projected 2026/27 wheat exports by 25 million bushels to 750 million bushels, potentially the second-lowest export volume since 1971/72. Competition from other major exporters continues to challenge American wheat in international markets. With bearish fundamentals and declining prices already attracting attention, an approaching historical November seasonal selling pattern in May wheat futures deserves a closer examination.
Technicals for the May Chicago Wheat Contract
Source: Barchart
The weekly chart of May 2027 Chicago wheat futures reflects a market under considerable selling pressure. Prices have fallen sharply from contract highs and are trading below both the 20-week and 50-week moving averages, reinforcing the bearish technical outlook. Recent Chicago wheat open-interest data have shown increases during declining prices, suggesting new positions are being established as selling pressure continues. However, markets rarely move in a straight line. After an extended decline, wheat may be due for a short-term corrective rally.
With sustained selling pressure, the June 29 weekly low of 615’0 becomes a critical level to monitor. A test of this support followed by a recovery could provide the springboard for a corrective rally. Conversely, a weekly close below this level could trigger additional sell stops and accelerate the decline. No guessing here. Let the market tell you what it wants to do.
A corrective rally toward overhead resistance could present an opportunity to evaluate new short positions, particularly as the historical November seasonal selling window approaches.
Seasonal Pattern for May Wheat Futures
Source: Moore Research Center, Inc. (MRCI)
Source: MRCI
According to Moore Research Center, Inc. (MRCI), a hypothetical historical test of May Chicago wheat futures identified a seasonal tendency for prices to decline between approximately November 4 and November 19. Over the 15 years studied, this selling strategy produced profitable results in 14 years, representing a 93% historical win rate and an average profit of $775 per trade before commissions and fees.
Interestingly, four of those 15 years experienced no daily closing equity drawdown during the holding period. These results are based on the standard 5,000-bushel Chicago wheat futures contract, where each one-cent price movement represents $50 per contract.
As a reminder, seasonal patterns can offer valuable insights, but they should not be the sole basis for trading decisions. Traders must also consider technical and fundamental indicators, risk management strategies, and current market conditions to make informed decisions.
Assets to Trade in the Wheat Market
While CBOT futures are the most direct vehicle for wheat exposure, several related markets provide alternative or complementary trading avenues:
Futures: Standard-size contracts (ZW), mini contracts (XW), and micro contracts (WT) offer different position sizes to accommodate traders’ risk preferences.
Wheat ETFs: WEAT provides exposure to a basket of CBOT wheat futures through a traditional brokerage account, without requiring a futures account.
Options on wheat futures: Buying puts or calls allows traders to express directional views with risk limited to the premium paid.
Spread trades: Intermarket spreads between wheat and other markets, such as corn or soybeans, let traders explore relative-value opportunities. Intramarket spreads involve trading different delivery months of wheat futures.
In Closing…
Wheat futures may have already declined significantly, but that alone does not mean prices cannot move lower. A short-term corrective rally could provide traders an opportunity to evaluate the bearish trend as the November seasonal selling window approaches. Rather than trying to predict a market bottom, let price action confirm the opportunity. Remember, successful trend-following is not about catching every move, but patiently waiting for favorable conditions and managing risk when they appear.
On the date of publication, Don Dawson did not directly have a position in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com
